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Researchers say CBDCs primed to fail

Cryptopolitan


As countries globally continue to find a path towards launching a Central Bank Digital Currencies (CBDCs), researchers are beginning to doubt digital currency’s success.

China, France, Japan, Russia, among other countries, are researching digital currencies. Even the European Central Bank is surveying policies around a digital euro.

However, researchers in Europe have argued that creating a CBDC in its entirety is at the risk of failing.

Why CBDCs would fail

Peter Bofinger and Thomas Hass of the Economics department at the University of Wuerzburg in Germany, in their article for European policy analysis publication VoxEU, says Central Banks have been too focused on CBDCs as a medium of exchange. According to them, this is what private bank already offers.

The researchers argue that rather than creating a CBDC used as a medium of exchange, Central Banks should go for supranational digital currencies that act as a store of value in the international system.

Both researchers from their findings conclude that it would be hard for central banks to launch a CBDC without interfering with the market.

Bofinger and Hass state that Central Banks have to state the objective they pursue with CBDCs and ensure that private providers do not meet them.

They also state that CBCs are also not a solution if the payment system’s financial stability or stability are not optimally met.

Do they further query why a resident would switch from a private bank or payment system to a nationally run one when they already have insurance on their deposits, they question

They say central banks can’t also offer more products than a private bank competing for customers.

What kind of CBDCs are bound to survive?

According to Bofinger and Hass, the best type of CBDCs is not yet being discussed by any central bank.

The CBDC bound to survive is not one that facilitates payments but for storing value. These would come from firms and large investors with bank deposits of more than €100,000, which would be bailed-in the case of a bank restructuring, they explain.

They also recommend that CBDCs to be created are one that can survive in the international economy. It must be supranational with multicurrency operability and openness to payment objects that are not system-specific.

They say if Central Banks continue with their current approach, CBDCs would be a gigantic flop.



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