European Central Bank Executive Backs Central Bank Digital Currencies
In his speech published May 27, 2019, Vitas Vasiliauskas, a Governing Council member of the European Central Bank, highlighted the benefits of a central bank digital currencies (CBDC). The Council member referred to some of the major drawbacks that hinder its implementation.
The speech was delivered during the Reinventing Bretton Woods Committee conference, “Managing the Soft Landing of the Global Economy.”
CBDCs May Aid Access to Central Bank Money
The Chairman of the Board of the Bank of Lithuania and member of the Governing Council of the ECB, Vitas Vasiliauskas, explained the concept of a CBDC while also exploring the possibilities of integrating such a product into today’s economy.
He told that a CBDC would be a novel type of central bank money, but it should differ from private crypto assets. Vasiliauskas noted that similar to today’s fiat currencies, a CBDC could serve as “a medium of exchange, a means of payment and a store of value.”
Explaining further, he stressed that the critical property of a CBDC was accessibility, and the biggest question was whether CBDCs should be retail, wholesale, or both. The decision would turn around whether everyone would have access or only a countable few financial institutions.
He also briefly introduced various forms of CBDCs, such as value-based wholesale and retail CBDC and an account-based retail variety. A better understanding of all the classifications of these digital currencies would render a better understanding of “the driving factors and motivations behind the idea,” he added.
Vasiliauskas mentioned that due to the rapid increase in the number of people opening accounts with private entities, there’s a decrease in cash circulation in some countries. This poses a threat of financial exclusion to those people who, for one reason or another, remain unbanked.
Suggesting how CBDCs could prove to be of help, he stated:
“Amid the evolving payments market, one of the key motivations for the retail CBDC is to ensure people’s continued access to the central bank money.”
Some other potential benefits that CBDCs may offer include more efficient payments and securities settlement and reduced counterparty credit and liquidity risk.
Though it presents quite a wide range of benefits, Vasiliauskas didn’t fail to bring forward the “other side of the coin.” He stated that there are still uncertainties about the underlying technology, and in addition to that, the anonymity which comes with digital currencies do not aid anti-money laundering compliance.
On a closing note, he said:
”For us, any significant step in the field of CBDCs would require action at the ECB level. For now, this seems like quite a distant prospect.”