Cryptocurrency

EU Bankers Weigh Risks, Rewards of CBDC – and Cash’s Staying Power

Central bank digital coins on the Continent – but plenty of room for cash.

To that end, Bloomberg reported at least some financial regulators from the European Union say there need to be strict controls governing central bank digital currencies in place — and Libra (among other private efforts) may present a threat to financial stability.

In Berlin, where last week saw a two-day meeting of financial officials from Europe, central bankers discussed digital payments and the confines of digital, national currencies.

At a high level, officials said that the European Central Bank should be the only one that should issue digital currencies.

“This point is something that cannot be jeopardized or weakened by any kind of project including the so-called Libra project,” French Finance Minister Bruno Le Maire said, as Bloomberg reported.  Separately, Germany’s Olaf Scholz said “what’s a responsibility of the state must remain a responsibility of the state.”

Bundesbank President Jens Weidmann said at the gathering that cash will still have a place in the world.

“Many people value cash very highly, and for legitimate reasons. It provides privacy, and its use does not necessarily depend on technical infrastructure,” he said.  At the same event, ECB President Christine Lagarde took note that there has been no decision yet to create a digital euro, though a task force’s findings are due to be presented within the next few weeks.  She said, too, that “an increase in protectionist policies” may present risks in a landscape where foreign payment service firms still hold sway.

The comments from the meeting in Germany come as a paper from the ECB found that cash still remains the dominant payment mechanism (at about 76 percent of transactions).

But as to what a CBDC might look like in the eurozone,  ECB executive board member Yves Mersch said a speech earlier this year that retail central bank digital currency (CBDC) is a game-changer and that retail CBDCs would be a “main focus.”  He said that a  wholesale CBDC, “restricted to a limited group of financial counterparties, would be largely business as usual.”

The ECB commentary, we contend, solidifies at least some regional approaches to CBDCs, but retail use cases may be gaining favor. As reported in this space, the People’s Bank of China (PBOC) has said that a test of a CBDC rests with small retail transactions — not large-volume transactions.

And here in the States, as detailed in an interview with Karen Webster, Jim Cunha, senior vice president, secure payments and fintech at the Federal Reserve Bank of Boston, told Karen Webster the joint efforts between the Fed and MIT are focused on exploring the infrastructure that would conceivably underly digital dollars. Though at least some central banks are focusing on wholesale payments — 80 percent of 66 central banks queried by the Bank of International Settlements (BIS) said they were working on CBDCs —  central bank efforts may bring retail use cases to bear, specifically through stimulus and government payments to individuals and families.

“Anywhere where you have a cash transaction can be a possible use case,” Cunha told Webster during the interview. CBDCs can also foster financial inclusion for the banked and unbanked populations, he said.

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