Mercy Mutanya is a Tech enthusiast, Digital Marketer, Writer and IT Business Management Student. She enjoys reading, writing, doing crosswords and binge-watching her favourite TV series.
Citing the emergence of cryptocurrencies and large digital platforms, ECB states that CBDCs are “the only solution to guarantee a smooth continuation of the current monetary system”.
Central Bank Digital Currencies (CBDCs) could be the only way to ensure a “smooth continuation” of the current monetary system, says the European Central Bank (ECB) in a Working Paper Series published last month. The paper discusses monetary policy and financial stability in relation to central bank digital currencies and is based on research from 150 academic papers.
The paper is the second paper to be released in the Working Paper Series devoted to crypto issues and published by the ECB this month. It was written by ECB Research Economist Toni Ahnert, ECB Head of the Monetary Policy Strategy Division Katrin Assenmacher alongside Financial Research Division Economist Peter Hoffmann
The paper acknowledged the increased interest in “the economics of money and payments” in the past decade and a half. It also highlighted the importance of digital money in a digital world.
“To operate efficiently, a digital economy requires digital money. Since more and more business is conducted online, cash is losing its appeal as efficient means of payment.”
Citing the emergence of cryptocurrencies and large digital platforms, ECB states that CBDCs are “the only solution to guarantee a smooth continuation of the current monetary system”. The paper states that physical money is losing its economic “fitness” as new technology gains roots in the present financial system.
“There is no regulatory alternative that promises to eliminate the threat to the two‐layer monetary system. Since cash is only available in physical form, it is by construction not “fit” for the digital age.”
The paper also revealed that 90% of 81 of central banks surveyed responded that they were actively investigating the potential for a CBDC at the end of 2021.
The paper has also dismissed concerns that CBDCs had the potential to cause shrinkage of the credit supply, stating that statements concerning the potentially disruptive nature of CBDCs were unfounded. It also noted a need for more research on privacy and end-user preferences for CBDC functions.
The paper also highlighted a challenge that central banks are faced with:
“Central banks face a tension between too much and too little adoption. While safeguards such as holding limits or tiered remuneration have the potential to avoid excessive use and reduce the risk of disintermediation, it is important to understand their effects on user adoption. More generally, the rapid rise in electronic payments implies that user preferences are shifting rapidly as new means of payment are becoming available. However, relatively little is known regarding the value end‐users attribute to certain features, including privacy and the convenience from bundling payments with other services.”
Read other crypto news on Coinspeaker.