ECB Says Cash ‘Not Fit’ for Digital Economy, Dismisses CBDC Privacy Concerns
(by Andrew Moran | The Epoch Times) – In the digital economy, cash is no longer a useful tool, and a central bank digital currency(CBDC) is the “only solution” to continue the existing monetary system, according to a new paper from the European Central Bank (ECB).
The eurozone’s central bank recently published a paper titled, “The Economics of Central Bank Digital Currency.” Authors assessed the implications for the financial system and examined data privacy and digital payments.
Researchers concluded that a CBDC, like a digital euro, would be the “only solution” to facilitate a “smooth continuation” of the present monetary system. Despite widespread concerns that CBDCs would limit the credit supply and function as a disruptive force in the financial markets, the paper rejected these concerns as being unfounded.
Digital money is critical in a digital economy, the ECB noted. Since “cash is losing its appeal as efficient means of payment,” a CBDC is a necessary tool to install. Although the research identified drawbacks of instituting a uniform digital monetary system, such as the sluggish pace of settlements, market developments, and adoption, the paper noted that “a digital update of cash” is crucial to advancing “the two-layer system of public and private money.”
Ultimately, cash possesses “large economic costs without clear benefits,” so “it is by construction not ‘fit’ for the digital age.”
Digital money might generate privacy concerns, authors warned. However, researchers say that there is a “privacy paradox”: consumers will emphasize an importance to privacy in surveys, but they will give away their personal data for free or in exchange for small rewards.
“From a public policy perspective, these observations warrant further scepticism concerning the ability of market forces to reach efficient levels of privacy protection,” the report noted.
The paper also rejected cryptocurrencies and stablecoins, calling them a “threat to monetary sovereignty.” It welcomed President Joe Biden’s digital asset working group to put together a regulatory framework for the crypto sector, as well as the myriad of other regulations considered worldwide.
“These proposals would bring new forms of digital money into the regulatory perimeter and help to address some of the major concerns related to monetary sovereignty and financial stability,” the paper stated.
The Rise of CBDCs
Across the globe, many governments and central banks have been studying CBDCs as a potential successor or complement to physical money.
In January, for example, the Federal Reserve released a discussion paper titled, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.” It examined the pros and cons of a possible U.S. CBDC. Read Full Article >