Central Bank Digital Currencies (CBDCs) are slowly becoming a trendy topic in the government reports around the world. The idea of CBDCs arose from the hype surrounding the cryptocurrency boom in late 2017. They were originally intended as a decentralized system based on the blockchain technology. One of the main qualities of this system was the fact that there is no central authority, no central bank, authority is cryptography and bank is the blockchain network.
The governments are now looking to take advantage of the blockchain technology. One of the areas that can be much more effective is the central bank area. Economists are starting to realize that implementation of the blockchain technology can significantly lower the cost of maintaining central bank. Italy is one of the countries that issued the report concerning this topic.
Fabio Panetta’s Keynote Address
In a keynote address focused on CBDCs Fabio Panetta, deputy governor of the Bank of Italy noted that forming a CBDC will be of great benefit for reducing costs in the transportation, production, and disposal of cash. He added that issuance of CBDC might be a natural step in the process of digitization of the financial system.
Panetta analyzed possible pros and cons of CBDC. As far as the cons are considered, he reported that general advantage of CBDC as a means of payment is still unclear when compared to already existing digital payment methods, mainly in the private sector. As Panetta said, CBDC would be a liability of the central banks in contrast to crypto assets which are a liability belonging to nobody.
Pros of CBDCs could be recognized in a much simpler and effective central banking system. Also, CBDCs have potential to be used as a store of value. Panetta spoke of CBDC as an asset with unique characteristics. These characteristics are in the fact that CBDCs are free of credit and liquidity risks. Because of that, they could become more effective means of storing wealth than bank deposits.
Panetta concluded a speech with a statement that possible issuance of CBDC by the central banks remains an open question. He also said that it might be too early to say goodbye to coins and banknotes as they have proven to be a resilient technology lasting for more than 3000 years.
There is a strong agreement that benefits of blockchain technology and cryptocurrencies are here to stay. Whether they will become part of a government-backed central banks remains to be seen.
It will certainly be interesting to keep an eye on experimental government use of blockchain technology. CBDCs surely have their strengths and we might see first official implementations in the near future.
As far as crypto space is concerned, cryptocurrencies with a central authority are not something that was originally intended. Future will tell whether this use of the technology will regress or innovate cryptocurrencies.
What do you think about this important dilemma? Will it turn out positive or negative for the crypto space? Share your opinion in the comments.