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Researchers say CBDCs are primed to fail

Muhaimin Olowoporoku by Muhaimin Olowoporoku
February 2, 2021
in Industry News
2 min read
CBDCs Mt Gox compensation Crypto lawyers
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TL;DR Breakdown

  • Researchers say CBDC should not be a means of exchange.
  • A potentially surviving CBDC has not been discussed.

As countries globally continue to find a path towards launching a Central Bank Digital Currencies (CBDCs), researchers are beginning to doubt digital currency’s success. China, France, Japan, Russia, among other countries, are researching digital currencies. Even the European Central Bank is surveying policies around a digital euro.

However, researchers in Europe have argued that creating a CBDC in its entirety is at the risk of failing.

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Why CBDCs would fail

Peter Bofinger and Thomas Hass of the Economics department at the University of Wuerzburg in Germany, in their article for European policy analysis publication VoxEU, say Central Banks have been too focused on CBDCs as a medium of exchange. According to them, this is what the private banks already offer.

The researchers argue that rather than creating a CBDC used as a medium of exchange, Central Banks should go for supranational digital currencies that act as a store of value in the international system. Both researchers from their findings conclude that it would be hard for central banks to launch a CBDC without interfering with the market.

Bofinger and Hass state that Central Banks have to state the objective they pursue with CBDCs and ensure that private providers do not meet them. They also state that CBDCs are not a solution if the payment system’s financial stability are not optimally met.

They question if there would be further queries about why a resident would switch from a private bank or payment system to a nationally run one when they already have insurance on their deposits. The researchers also say central banks can’t offer more products than a private bank competing for customers.

What kind of CBDCs are bound to survive?

According to Bofinger and Hass, the best type of CBDCs is currently not being discussed by any Central Bank.

The CBDC bound to survive is not one that facilitates payments but for storing value. These would come from firms and large investors with bank deposits of more than €100,000, which would be bailed in the case of a bank restructuring, they explain.

They also recommend that CBDCs to be created are ones that can survive in the international economy. It must be supranational with multicurrency operability and openness to payment objects that are not system-specific.

They say if Central Banks continue with their current approach, CBDCs would be a gigantic flop across the world.

Tags: cbdc
Muhaimin Olowoporoku

Muhaimin Olowoporoku

Muhaimin loves writing on crypto news aside from being a crypto enthusiast. He has a knack for analysing issues and updating people on what's happening around the globe. He believes that blockchain and cryptocurrency are the most useful systems of mutual trust ever devised.

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