The recently released “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures” prepared under the aegis of the ECB Internal Crypto-Assets Task Force (ICA-TF) focuses mainly on the current developments in the industry and the cryptoassets’ impact on the financial system. A separate appendix to the main text features the central banker’s take on CBDCs.
According to the authors’, the issuing of digital currencies by the central bank should be considered independently from the technology underlying such currency and such currency would not constitute a new asset type, hence its separate treatment from the rest of the document.
The paper states that ECD’s CBDC would have to be complementary in nature to the euro and act as its new form and not a separate currency.
“The status of the euro as the single currency of 19 EU Member States is not under discussion,” the paper reads.
The papers’ authors then undertake the task of analyzing the risks and benefits of a CBDC and establish that these would depend on the currency design features.
“Depending on its specific features, CBDC could either allow monetary policy to reach a wider range of economic actors more directly or weaken the tools available to the issuing central bank for the conduct of its monetary policy,” they write.
According to the authors a CBDC “could be designed as a user-friendly risk-free asset that meets the public’s demand for an economy that is both digitalized and safe.” This, however, comes with a potential downside of affecting the central banks’ ability to finance economic activity by withdrawing “a substantial amount of liquidity from the banking system,” especially during downturns “in response to possibly unjustified rumors”.
They then propose to mitigate such risk by limiting the amount of CBDC injected into the economy “in a way that ensures that it is fungible with any other form of the euro”.
The paper also touches on the issue of privacy, noting that if the level of privacy of digital currency were to be improved and brought to the level of physical cash “it would raise issues with respect to the enforcement of laws against money laundering and the financing of illegal activities.”
The authors then move on to the questions of demand for a CDBC and establish that in the light of the ongoing popularity of euro banknotes and the availability of “a wide range of electronic payment instruments underpinned by sound clearing and settlement infrastructure,” the case for issuing CBDC in the euro area is not compelling.
“The ECB and the broader community of euro-area central banks will continue evaluating the case for making a digital version of euro central bank money available to the public on the basis of evolving requirements and global developments,” the authors conclude and cite examples of research already undertaken.
Read ECD’s full report here.