Does it make sense for the world’s central banks to issue digital assets?

Virtual assets from central banks, known by the acronym CBDC, are not a good concept. Researchers Peter Bofinger and Thomas Hass from the Faculty of Economics at the University of Würzburg in Germany are convinced of this.

Experts believe that despite active testing of CBDC in practice in China and some other countries, centralized digital currencies will not bring anything new to society. Let’s talk about the details of the study in more detail.

Recall that the idea of ​​launching digital national currencies is quite popular. For example, at the end of October 2020, representatives of the Bank of Russia announced the approximate timing of testing the digital ruble. As the head of the Central Bank of the Russian Federation Elvira Nabiullina noted, the launch of this project is possible, including at the end of 2021.

At the same time, as the head noted, the digital ruble will not displace other types of money in the country, but will only supplement them. Thus, it should become the third form of money, along with the already existing cash and non-cash funds.

Disadvantages of digital currencies of banks

Bofinger and Hass outlined their thoughts in an article published on the VoxEU platform. In their view, central banks have been overly focused on CBDC as a medium of exchange, while private banks are already offering advantages such as deposit insurance and a wide range of other financial products. Instead of CBDCs that act as a medium of exchange, researchers are advocating supranational digital currencies that function as a store of value in the international system.

The most important thing is the definition of the concept. Here is another comment from experts on this issue.

CBDC can be thought of as a deposit at a central bank that is used within existing Real Time Gross Settlement (RTGS) payment systems. However, the concept can also be understood as an independent payment system that operates in parallel with the existing system using deposits held at the central bank.

In the current environment, the transition to CBDC will hardly change anything from the point of view of the average layman. Now there are fast payment systems and a wide variety of solutions from private banks that strive to provide their customers with the best services in a constantly competitive environment. In this vein, the transition to a state digital currency for an ordinary citizen does not give any prospects, analysts say.

Instead, Bofinger and Hass propose to focus on creating CBDCs that could serve as a capital preservation vehicle for large investors and organizations. Finally, they argue that CBDCs are too small in terms of volume in the international economy.

The «global standard» is set by PayPal, which is the «elephant in the china shop» of global payments. The company shows that instead of national schemes that can work only with the national currency and perform transactions only with system accounts, the solution should be supranational, with multicurrency and openness to payment facilities that do not depend on the system.

One way or another, so far CBDCs are at the planning stage in many governments around the world. And any success of such projects can be judged only by the experience of China.

We believe that analysts’ comments are unlikely to affect the activity of global banks. Therefore, at some point in time, the launch of both digital national currencies and other similar products will await us. Perhaps, in general, there will be few advantages for such products, but they will clearly find their users. Well, it will be possible to draw some conclusions after a full-fledged start of work of something like that.

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