CBDCs are key to sustaining the monetary system in the digital age: ECB study
European Central Bank (ECB) officials have reiterated their support for central bank digital currencies (CBDCs) in the latest installment of its working paper series. ECB researchers have found that among all other alternatives, CBDCs are the only solution to ensure the smooth continuity of the monetary system in the digital age.
The work document “The Economics of Central Banking Digital Currency” examines the existing literature on the monetary policy and financial stability implications of retail CBDCs. He also mentioned several key findings gathered from over 150 academic papers. Among these, interest in the economics of money and payments has increased significantly over the past 15 years. Similarly, the issue of privacy continued to linger in discussions after the introduction of CBDCs.
The authors note that while surveys show that consumers place a high value on privacy, there is a dichotomy in how they actually treat their privacy. Consumers are generally willing to give up their data for free or in exchange for small rewards.
They also found that central banks exploring CBDCs wondered if there were any alternatives that could serve the same purpose. However, no such alternative has yet been found that can eliminate the threat that the growing proliferation of digital payments in the digital age may pose to the cash-dependent monetary system.
“There is no regulatory alternative that promises to remove the threat to the two-tier monetary system. Since cash is only available in physical form, it is by construction not “suitable” for the digital age… Thus, the introduction of digital cash in the form of CBDCs appears to be the only solution for ensure a smooth continuation of the current monetary policy. system,” the log read.
ECB backs CBDCs on digital assets
Although the article is not considered the opinion of the authors, the ECB has long been a strong supporter of CBDCs on digital assets. Last June, regional bank senior executive Fabio Panetta argued that digitization of central bank money has become increasingly necessary as payments are increasingly digitized.
The ECB is also working on issuing a digital euro for member states of the European Union (EU). According to an announcement in July, work on the CBDC has entered its second phase of development. The phase will test the digital euro for retail use cases for pilot deployment in 2023.
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