Amid the frantic rush of banking regulators to float central bank digital currencies (CBDCs), one former central banker is pushing for greater private sector participation in the field.
Jon Helgi Egilsson, an ex-chairman of Iceland’s central bank supervisory board, suggested at the Brussel Blockchain Week that CBDCs can be issued and operated by private entities. Speaking to attendees, Egilsson opined that central banks might lose out on innovation and healthy competition by preventing private participation.
“When private companies compete in the market, in technical and business innovation, a CBDC or CBDC equivalent does not have to be offered by a central bank,” Egilsson said. “It may serve the currency better if the central bank removes itself from competition.”
Globally, the frantic push for CBDCs is fuelled by the need for central banks to limit the spread of privately issued digital currencies. Proponents argue that CBDCs issued by the government offer the benefits of preventing capital flight, upheavals to financial stability, and money laundering.
However, Egilsson notes that central banks may breach the provisions of antitrust laws following a conflict of interest between them and private digital currency issuers. The ex-central banker advocates for central banks to step aside in offering retail CBDCs to allow private entities to play a larger role.
“So, I say to central banks that they should embrace competition,” Egilsson said. “And ensure that their currencies are offered in a regulated shape.”
Several arguments can be proffered in support of private participation in retail CBDCs, including the fact that commercial banks have a long history of interaction with consumers.
In March, the Association of German Banks, in a paper, amplified calls to the European Central Bank (ECB) to allow commercial banks to spearhead efforts for a digital euro. According to the paper, the banks say they are in the best position to mitigate the risk of bank disintermediation associated with the widespread use of CBDCs.
CBDCs have a mountain to climb
Ahead of their official launches, CBDCs face stiff opposition in several jurisdictions over fears of increased government surveillance. The stiffest opposition to CBDCs appears in the U.S., where state governments are preparing for a face-off with the federal government over a proposed digital dollar.
According to a recent poll, only 16% of Americans support a CBDC, while an overwhelming majority expressed privacy concerns and the grim prospect of governments freezing user funds at will.
Florida Governor Ron DeSantis signed a bill prohibiting the use of CBDCs in the state, with Texas, North Dakota, and Louisiana set to follow the same path.
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.
Watch: Blockchain provides perfect foundation for CBDC
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