Denmark’s National Bank has questioned the motivation for central bank digital currencies (CBDCs) among developed nations. The central bank also stated that while it is open to new forms of digital money and will organize a conference on the subject in Q4 of 2022, Denmark’s financial system does not have any pressing need for them.
The National Bank shared the stance in an analysis paper it published titled “New types of digital money.” At length, the paper discussed digital assets, including stablecoins, wholesale CBDCs, and retail CBDCs.
For CBDCs, the central bank pointed out that the key motivation for central banks exploring them, especially in the European Union, is for retail CBDCs to act as a trust anchor for digital money once cash disappears. This motivation is not there for Denmark as the country is already a leader in using digital money.
Only around 10% of physical transactions in Denmark use cash at present, yet the system does fine with reliance on digital bank money and not a CBDC. Similarly, the National Bank also cites its finding that the country’s citizens who store money in cash do so for anonymity and not for any systemic trust concerns for digital money.
“At present, and with the associated costs and possible risks, it is not clear how retail CBDCs will create significant added value relative to the existing solutions in Denmark,” the report said.
However, the report states that Denmark does not completely rule out the prospect of a CBDC in the future and is still committing resources to study it. In fact, it makes several arguments in favor of CBDCs, including that they can increase financial inclusion, improve financial system resilience, and reduce reliance on foreign payments infrastructure.
Denmark’s history with CBDCs
Denmark first began exploring the launch of a CBDC called the e-Kroner in 2016. However, per data from CBDCTracker, the European country shelved the plans in December 2017, stating that the benefits do not match up with the challenges that exploring the possibility would throw up.
Since then, the country has only explored other use cases for blockchain technology. The Danish Ministry of Development Cooperation released a report on how blockchain technology can be used to fight corruption back in 2020.
While Denmark is reluctant to explore CBDCs, other countries are not passing up the innovation. According to a Bank for International Settlements (BIS) tally, 105 central banks worldwide are at different stages of their CBDC pilot projects.
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