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Will central bank digital currencies "CBDC" be a viable alternative to fiat currencies?


China and the Bahamas are already experimenting with their central bank digital currencies, as these are digital copies of their national paper currencies.

While the European Central Bank is polling public opinion on the digital euro.

Central banks in most countries are actively researching the uses of central bank digital currencies.

But maybe they should stop!

Thus, two researchers stated in a research paper released today that the entire project to create alternatives to digital cash is in danger of failure because it lacks a clear justification and need.

These two researchers are "Peter Bofinger" and "Thomas Haas", who published the analysis of European politics at the Department of Economics at the University of "Werzburg" in Germany.

The researchers argue that central banks have placed too much emphasis on central bank digital currencies as a medium of exchange.

But they neglect the fact that private banks offer benefits such as deposit insurance and a variety of products and services.

The two researchers also tell that the central bank's digital currency is suitable for being a means of storage rather than exchange.

They presented their arguments in this context, which came as follows:

Definition of CBDC digital currencies:

Peter Bovinger and Thomas Haas defined the CBDC by saying:

Central bank digital currency can be thought of as a deposit with the central bank that is used under current payment systems for total real-time settlement.

It can also be understood that the central bank digital currency is an independent payment system that works in parallel with the current system using deposits held with the central bank.

The authors find that it will be difficult for central banks to launch a central bank digital currency without interfering with the market.

Bofinger and Haas noted, in this regard, by saying:

They have to show that the goals they pursue with digital central bank currencies are not currently being satisfactorily met by private service providers.

Even if public services such as financial stability or the stability of the payment system are not met optimally, it is not clear how CBDC will be the appropriate solution.

In addition, the researchers ask, why might a citizen want to switch from a private bank or a payment system to a bank that is managed at the national level when he already has insurance on his deposits?

Certainly not because a central bank can offer more products than any private bank vying for customer service.

From the researchers' point of view, perhaps the best type of central bank digital currency is the one that no central bank talks about for fear of mediation.

This would be a central bank digital currency not intended to facilitate payments but to store value.

And they wrote:

The demand for a central bank digital currency with stored value will come from companies and large investors with bank deposits in excess of 100,000 euros, which will be saved in the event of a bank restructuring.

From the user's point of view, this demand will depend on the interest rate of such deposits.

Central banks can auction the stored value deposits that give them complete control over their value.

In conclusion, the two researchers touched upon the aspect that central bank digital currencies are very small in scope in the international economy.

The two researchers ended by warning central banks that:

If central banks stick to their current approach, the risk is high that CBDCs will end in misfortune.