National digital currencies that will be issued by central banks are not really needed as a digital cash substitute as the economists Thomas Hass and Peter Bofinger noted. In today’s crypto news, we are taking a closer look at their research.
Many countries started experimenting and researching central bank digital currencies and economists Peter Bofinger and Thomas Hass argued that the CBDCs will fail as a medium of exchange because of the strong competition between private banks. They say that national digital currencies could only succeed as a store of value for bigger investors and companies.
so, uh, CBDC doesn't have a … use case https://t.co/4wdOHrxOu0
— David Gerard 🐍👑 (@davidgerard) February 1, 2021
China and the Bahamas are already preparing to launch a central bank digital currency and a digital version of their national currencies as well. The European Central Bank surveyed the public about the digital euro and most countries’ banks are researching how to use digital currencies for payments. The researchers believe that they should stop because the entire world of creating digital cash substitutes could fail because there’s no obvious justification for it. Both researchers of the Economics Department at the University of Wuerzburg in Germany argued that central banks were too focused on CBDCs as a medium of exchange and the private banks offer benefits like deposit insurance and a wide variety of products.
Instead of CBDCs that work as a medium of exchange, they argued for a supranational digital currency that will act as a store of value in the international system. CBDCs can be divided into balances with central banks and can be used as payment methods as well. Looking at the designs that most people research, the authors found that it will be hard for central banks to launch one without interfering with the market:
“They have to show that the objectives which they pursue with CBDCs are currently not satisfactorily met by the private providers. And even if public goods like financial stability or stability of the payment system are not optimally met, it is not obvious that CBDC is the adequate solution.”
According to the researchers, the best type of CBDC is not the one that banks are talking about:
“The demand for a store-of-value CBDC would come from firms and large investors with bank deposits of more than €100,000, which would be bailed-in in the case of a bank restructuring. From the user perspective, this demand would depend on the interest rate for such deposits. Central banks could auction store-of-value deposits which would give them a perfect control over their amount.”
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