Cold hard (digital) cash: the economics of central bank digital currency

Cash is king, but…what is cash? Interesting article released today by European Central Bank on the economic forces that shape the rise of digital money, the implications for banks and considerations for monetary policy and financial stability. Some key takeaways, presented by Andrei Burz Pinzaru, partner Deloitte Legal Romania / Reff & Associates:

– The rise of digital platforms as a dominant business model of the information age is challenging the central role of banks in the payment system.

– Large technology firms and financial start-ups are bundling payments with digital services, such as online marketplaces, messaging apps and financial services (for example lending and insurance).

– While banks continue to provide the underlying payment rails for these solutions, they are losing access to the customer interface.

– Further disruption is potentially looming on the horizon, caused by rapidly developing and complex payment innovations. This includes distributed ledger technology, which provides the basis for “stablecoins” (crypto-assets designed to maintain a stable value) that could be used as means of payment.

– The declining use of cash and the potential for a growing role of new forms of money outside the regulated banking sector have led to calls for the introduction of a digital version of cash, often referred to as central bank digital currency (CBDC).

– According to a recent survey by the Bank for International Settlements, almost all respondent central banks are actively investigating the potential for a CBDC

– Introducing a CBDC could imply changes for central banks’ operations and their balance sheets but also for the banking system as a whole.