The two revive the debate about possibility of central bank backed cryptocurrencies. On a note, they can improve on the challenges of centralized banking systems as exposed by Bitcoin and other cryptocurrencies. Bank for International Settlements (BIS) also said central bank backed are a possibility but could drain banks’ digital resources in times of financial instability.
European Central Bank officials are of the opinion that central bank digital currencies (CBDCs) may answer to the need of cashless society and change the way consumers control their money.
ECB executive board member Benoit Coeure and Bank of International Settlements Markets Committee chair Jacqueline Loh said in their opinion titled “Bitcoin is not the answer to a cashless society”. It means that digital money is the way to the future. However, they say in that piece that existing public cryptocurrencies such as Bitcoin are not that future.
The opinion is surprising given that cryptocurrencies such as Bitcoin are much way ahead in their quest to create a cashless society. They have vast amount of experiences and lessons to borrow from, though, says the two. Although these are not the future, they expose many shortfalls in the current ways of transacting and banking systems. They say that the current payment channels are much slower, less transparent and more expensive than domestic ones.
Bitcoin has shone light in the way cross-border transaction systems do not need to be overly expensive. Besides, it has applications in cross-border retail payments.
The two, for instance, say that the cryptocurrencies allow users to easily buy goods online from overseas. They also allow foreign workers to send money home and they also facilitate financial inclusion and development.
Central banks, they say, can improve on these shortfalls and rise to the current challenges (such as being much slower, less transparent and more expensive) experienced by traditional banking systems as exposed by cryptocurrencies.
In their opinion, a central bank-backed cryptocurrency is welcome given the increasing use of digital currency systems by customers.
These centralized cryptocurrencies can provide direct access of funds to customers who will therefore not need go through a bank.
People’s Bank of China chairman Zhou Xiaochuan said that it was inevitable for the country. Since to have a national digital currency of its own.
Additionally, Bank for International Settlements (BIS) report on Tuesday said that central bank backed cryptocurrencies are possible. However, it said CBDCs would give customers power to fuel faster runs. However which will drain banks’ digital coffers in times of financial instability.