11 Jun 2018
The Deputy Governor of the Bank of Italy, Fabio Panetta has said on Thursday that the Central Banks Not Ready to Issue Digital Currencies soon. Why is that?
11 June, AtoZ Markets – In his Keynote address delivered at the SUERF/BAFFI CAREFIN Centre Conference, Fabio highlighted from the outset, the possibility for central banks to issue currencies digitally.
The Governor said that the central bank digital currencies (CBDC) would be a liability of of financial institutions, backed by its assets, unlike cryptocurrencies, a liability that belongs to nobody.
Panneta has been quoted as saying:
"In fact - just like banknotes - a [central bank digital currency (CBDC)] would be a liability of the central bank and would be backed by its assets. It would be supported by the credibility of the central bank and ultimately, by the rule of law. Crypto-assets, on the other hand, are a liability belonging to nobody: there is no asset that backs them up and no clear governance structure that can guarantee trust… the value of a CBDC would not suffer from the excessive volatility that affects crypto-assets."
It is clear that CBDCs would experience similar volatility that has been created by the potential for government intervention on monetary policy.
Panetta, however, mentioned some advantages of the CBDC. For instance, he has noted the cost efficiency of central bank digital currencies. The cost of managing digital currency would be lower when compared to a physically distributed currency.
Since CBDC would be completely dematerialized, it would be an easy way to store wealth with few or no storage costs.
In addition to virtually zero storage costs, Panetta highlighted that CBDCs would be an asset "free of credit and liquidity risk." Based on this, households and firms could prefer these means of storing wealth, including bank deposits.
However, there are a number of key issues surrounding digital currencies. For example, Mr. Panetta raised the issues of traceability and privacy. These are the vital issues surrounding the CBDCs. He presented an ethical concern for future. where all consumer transactions are traceable by the banks, thus helping them to make decisions about consumer creditworthiness.
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