European Central Bank reportedly discuss merits of bank-issued crypto

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A recent report by the European Central Bank (ECB), from just a few days ago, indicated that cryptocurrency is not a concern and not a threat to fiat’s financial stability. The report further asserted that any risks from crypto are easily mitigated, making those risks virtually nonexistent since crypto isn’t really money. Fast forward just a few days and it becomes apparent that there is potential discord in the ranks, as another ECB official has publicly touted the benefits to a central bank-backed digital currency (CBDC).

Vitas Vasiliauskas, who chairs the board of the Bank of Lithuania and is a member of the ECB’s governing council, spoke at the Reinventing Bretton Woods Committee conference in April where he discussed the digital currency and whether it should be wholesale, retail or both. 

He asserted that CBDCs need to be a medium of exchange, a store of value and a means of payment. These are the three traits that define any currency and are also the same traits that crypto opponents routinely (and incorrectly) argue are not part of the crypto ecosystem.

He added that CBDCs can offer greater efficiency for payment transactions and securities settlements, while reducing liquidity and counterparty credit risks. A retail CBDC that earns interest could also prove beneficial for the transmission of monetary policy and its role in deposit and lending rates. 

Vasiliauska cautioned, “The amount of cash in circulation is declining in some countries. This could mean that one day, even if it seems like a distant prospect—every single person will have to have an account with a private entity just to make payments. Unfortunately, this may lead to increased levels of financial exclusion.”

His belief is that a retail CBDC could help overcome this limitation and that it would lead to greater financial stability. While the cause is noble, he is missing the main issue behind the development of Bitcoin, which was to prevent centralized control and, thus, the ability to manipulate values.

A CBDC would be essentially the same as a digital form of fiat where central banks can arbitrarily and whimsically control the value. Bitcoin allows the value to be controlled by the community, which is the same as saying that it is controlled by users. In other words, consumers are able to establish values, not central banks that could, at any minute, falter like what has been seen in Venezuela, Iran, Argentina and elsewhere.