The European Central Bank (ECB) has said cryptocurrencies could “be an early sign of change” around the world.
In an opinion piece on Tuesday titled “Bitcoin is not the answer to a cashless society,” ECB executive board member Benoît Coeuré and Bank of International Settlements Markets Committee chair Jacqueline Loh write that, while digital money may be the way of the future, existing public cryptocurrencies like bitcoin are not that future. Rather, the pair tout the potential of central bank digital currencies (CBDCs) in changing the way consumers have control of their money.
Still, the piece acknowledged that cryptocurrencies are addressing an important shortfall in current banking systems, noting, “Despite its many faults, bitcoin has put the spotlight on an old failing of our current system: cross-border retail payments.”
The authors continue:
“Such payments not only permit shoppers to easily buy goods online from overseas, but also allow foreign workers to send money home, supporting financial inclusion and development. However, [existing] payment channels are generally much slower, less transparent and way more expensive than domestic ones.”
To address this failing, central banks must improve international payment channels and rise to the challenge bitcoin is presenting fiat currencies, the opinion piece asserts.
The article also outlined the potential role a central bank-backed cryptocurrency could play, noting that consumers are already increasingly using digital payment systems instead of cash. Creating a central bank digital currency would grant consumers direct access to funds, rather than forcing them to go through a bank.
Stepping back, the comments echo those made in a Bank for International Settlements (BIS) report yesterday, which highlighted perceived issues with CBDCs, specifically noting that they could give customers the power to fuel faster runs, thus draining banks’ digital coffers during periods of financial instability.
However, the piece did emphasize that a central bank-backed cryptocurrency is possible, echoing remarks made by People’s Bank of China chairman Zhou Xiaochuan, who last week said it was “inevitable” that the country would one day have a national digital currency of its own.
Benoît Coeuré image via Wikimedia Commons