There is an acronym that is gaining more and more attention in the world of economics and finance. This is CBDC, short for “central bank digital currencies” (Central Bank Digital Currency). In a world that is rapidly digitizing and where cash payments are replaced by transactions made by simply touching the phone screen, this payment method, inspired by deregulated cryptocurrencies such as “bitcoin” but controlled by monetary institutions, seems more and more realistic. HE European Central Bank (ECB) It has published several articles in recent months describing the advantages of the “digital euro” implementation for citizens and companies in the euro area. The US Federal Reserve is exploring doing the same for the dollar. In both cases, thoughts and suggestions: No one has yet made a firm decision or officially announced that these CBDCs may enter circulation.
China has already launched the “digital yuan”, but it currently does not represent even 1% of the money supply. A recent report by consulting firm McKinsey notes that there are currently 87 countries considering the implementation of digital currencies – which together represent more than 90% of world GDP.
Central bank money and private money. To know the role the digital euro will play, it is convenient to know the difference between central bank money and private money. The first is one that is issued by the ECB and therefore has the support of a public agency. The banknotes and coins we carry in our pockets are central bank money. Private banks create money, for example, when they give us a loan that appears in our account. The balance on the statement is credit card payments or “bizums” private money transfers. But when we draw some bills from the ATM, we convert that special money into central bank money. On the contrary, when we deposit a ticket into the account, we make it a special ticket. This convertibility is what maintains reliance on the two types of money. According to the ECB, the purpose of the digital euro is to combine the legal guarantee of public money with the generalization of electronic payments. “You can use a card or phone app to pay with digital euros, just like you spend money in your bank account. However, this will be money guaranteed and backed by the ECB,” the currency says.
opposite cryptocurrencies. The ECB also believes that the expansion of the digital euro will include the advancement of cryptocurrencies such as “bitcoin” or “ethereum” that are not controlled by public institutions and could “undermine financial stability” due to their high volatility, according to the European institution. Asturian Pablo de Andrés, professor of Economics and alternative finance expert at the Autonomous University of Madrid, believes that “central banks’ digital currencies will make cryptocurrencies less speculative and create a more logical and balanced market.”
Are the tickets out? The ECB does not anticipate the end of physical notes and coins, and assures that the digital euro “will be a complement, not a substitute for cash, and will retain the role of central bank money as a stabilizing force in the payment system.” However, he warns that the growth of internet transactions in the pandemic is “testing” the coexistence of digital and cash payments. “The Eurosystem will continue to provide cash as long as people continue to demand it,” the organization says, but at the same time, “cash may stop playing a central role” if the digital trend continues to explode. However, the ECB acknowledges that at the moment “the prevalence and acceptance of cash preserves the autonomy and monetary sovereignty of European payments” and that banknotes “will continue to be an alternative solution in case of geopolitical tensions or sanctions against Europe”. Especially given that “most electronic payment solutions are managed by companies located outside the European Union”.
Anti-corruption tool. Pablo de Andrés argues that another advantage of CBDCs is that they can “help prevent corruption, as it will be easier to control whether public funds from a prize with a digital currency actually reach their recipients.” ECB President Christine Lagarde defended the digital euro as a method to combat terrorism financing or money laundering. The key tool for tracking these movements is “blockchain” technology, which records all the information of a transaction in a decentralized manner.
More social control? One of the great reluctances raised by CBDCs is their possible use by the State to violate citizens’ privacy and limit the amount of money that can be spent, for example, in inflationary situations. De Andrés does not consider this scenario: “In democratic societies, there will be constitutional laws protecting fundamental rights regarding the use of digital currency.” However, controversy recently erupted with a statement by Christine Lagarde in which she stated that “complete anonymity such as those offered in cash is not a viable option”.
keys
- global current. According to a McKinsey study, 87 countries worldwide (collectively representing more than 90% of global wealth) are looking for ways to create digital currencies issued by their central banks. In some countries, such as China, they already exist, but their weight in the money supply is permanent.
- argument. In a speech on the digital euro, ECB President Christine Lagarde stated that unlike cash movements, “total anonymity is not a viable option”. The words sparked the debate over whether the new virtual currencies would bring greater surveillance of privacy.
- Horizon. At present, it is unknown when the digital euro will come into the daily life of citizens. The ECB is still under investigation and is expected to expire in October 2023. The body will then move to a new phase in the development of integrated services, which could take another three years.
Source: Informacion
James Sean is a writer for “Social Bites”. He covers a wide range of topics, bringing the latest news and developments to his readers. With a keen sense of what’s important and a passion for writing, James delivers unique and insightful articles that keep his readers informed and engaged.