Officials of the European Central Bank (ECB) have reiterated support for central bank digital currencies (CBDC) in the latest installation of its Working Paper Series. ECB researchers opined that among all other alternatives, CBDCs are the only solution to ensure the smooth continuation of the monetary system in the digital age.
The discussion paper “The economics of central bank digital currency” examines existing literature on the monetary policy and financial stability implications of retail CBDCs. It also mentioned several key findings gathered from over 150 academic papers. Among these is that interest in the economics of money and payments has increased significantly in the last 15 years. Similarly, the privacy issue has continued to linger in discussions following the introduction of CBDCs.
The authors note that while surveys show that consumers attribute high importance to privacy, there is a dichotomy in how they treat their privacy in reality. Consumers are usually willing to give up their data for free or in exchange for small rewards.
They also found that central banks that are exploring CBDCs have been asking if there are alternatives that can serve the same purpose. However, no such alternative has been found yet that can eliminate the threat that the digital era’s increasing proliferation of digital payments can pose to the cash-dependent monetary system.
“There is no regulatory alternative that promises to eliminate the threat to the two‐layer monetary system. Since cash is only available in physical form, it is by construction not ‘fit’ for the digital age… Accordingly, the introduction of digital cash in the form of a CBDC appears to be the only solution to guarantee a smooth continuation of the current monetary system,” the paper said.
ECB in support of CBDCs over digital assets
While the paper is disclaimed as the authors’ opinion, the ECB has long been a vocal supporter of CBDCs over digital assets. Back in June, Fabio Panetta, a senior executive at the regional bank, argued that the digitization of central bank money has become increasingly necessary as payments are becoming more digitized.
The ECB is also working on issuing a digital euro for European Union (EU) member states. According to an announcement in July, work on the CBDC has entered its second development phase. The phase will test the digital euro for retail use cases in preparation for a 2023 pilot rollout.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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