Central bank digital currencies aka CBDCs have garnered increased interest from governments across the world. China has been spearheading this evolution in the global financial scene. As the country has already begun distributing the digital yuan among its citizens, other countries have just started their research on these digital assets. Amidst this steer towards digitalization, two economists suggest that CBDCs could fail to meet the expectations it has set.
CBDCs Lack “Obvious Justification” Suggest European Economists
In a recent research paper released by European Economists, Peter Bofinger and Thomas Hass point out a different narrative to the whole CBDC game. While the globe is prepping for an elevated payments method with the launch of CBDCs, the aforementioned economists fail to differentiate the prospects of these national digital currencies from what the private banks are already rendering. Though the European Central Bank [ECB] has been enhancing its effort towards the digital euro, Bofinger and Hass suggest that the ECB should steer in a different direction.
The paper read,
“If CBDCs are designed as new payment objects that are used within existing payment systems, the user perspective implies that CBDCs must compete with existing payment objects (above all cash and traditional bank deposits). If CBDCs constitute new payment systems, their acceptance by private users must be analysed within the context of the existing payments ecosystem. For the reputation and credibility of central banks, it is important that any CBDC solution is attractive enough for potential users to adopt it.”
The economists mostly stressed the objectives that CBDCs pursue. They suggested that these national digital assets would probably succeed if they took a road that private providers do not take. However, they were adamant about central bank currencies being a great store of value as opposed to facilitating payments. Bitcoin, the largest cryptocurrency has been tussling with a similar narrative.
While countries have been putting all their resources to deliver a good central bank currency, the economists pointed out that they should entail multicurrency operability while being open to payment objects that are not specific to a single system. Paypal has time and again rendered unbeatable services to the people, competing with an already established system like that for global payments could be a task. If the central banks fail to address all of this, central bank currencies could be a “gigantic flop” the economists suggested.