The ECB working paper intended to identify CBDCs related challenges, areas of agreement, and research needs, such as user preferences.
The creation of central bank digital currencies (CBDCs), according to the European Central Bank (ECB), looks to be the “sole answer” that would ensure the “smooth continuance” of the current monetary system.
The remarks were presented as part of an ECB Working Paper Series on Monetary Policy and Financial Stability in Relation to CBDCs, which was published in August and drew information from 150 research papers on the topic.
The paper’s opening statement noted that, in the previous 15 years, interest in “the economics of money and payments” had grown significantly and had reached beyond a purely academic audience.
The paper examines that procedure before introducing the CBDC’s goals and the complex privacy concerns that surround them. Authors’ observations
“While consumers tend to attribute high importance to privacy in surveys, they tend to give away their data for free, or in exchange for very small rewards in practice […]. Analyzing the roots for this apparent dichotomy, researchers point to various contributing factors.”
However, the paper comes to the conclusion that the introduction of CBDCs is “the only solution to guarantee a smooth continuation of the current monetary system” as physical money loses its economic “fitness” and cryptocurrencies and BigTech (large digital platforms) continue to erode the financial system, observing:
“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 authors examined potential regulatory action that may aid CBDCs in achieving their objectives and emphasized the significance of central banks reaching the proper amount of CBDC “take-up”.
The study also dismisses worries that CBDCs would lead to a reduction in the credit supply, pointing out that such predictions were baseless. More study is needed in the areas of privacy and end-user preferences for CBDC services, it was determined.
This is the second report on crypto-related topics that the ECB has published this month. In a previous comparison of the cross-border payment capabilities of CBDC, Bitcoin (BTC), and stablecoin, CBDC came out on top.
Toni Ahnert, a Research Economist at the ECB, Katrin Assenmacher, the head of the ECB’s Monetary Policy Strategy Division, and Peter Hoffmann, an economist in the Financial Research Division, among others, are the authors of the study.
