Central banks aren’t ready – at least in the short-term – to handle the implications of launching wholly digital currencies, the deputy governor of the Bank of Italy said Thursday.
Fabio Panetta delivered the keynote address for the SUERF and BAFFI CAREFIN Centre Conference held at Bocconi University. In his remarks, he became the latest to discuss the possibility for central banks to issue currencies digitally, including those that incorporate elements of cryptocurrencies like bitcoin or some of the concepts that underpin blockchain.
At the same time, Panetta began his keynote by distancing the conversation from cryptocurrencies.
He was quoted as saying (according to a transcript of his remarks published by the Bank of International Settlements):
“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.”
Of course, by this logic, CBDCs would continue to suffer from the same volatility created by the potential for government intervention on monetary policy, a concern that has been previously linked as a cause for individuals seeking out crypto-assets like bitcoin.
Knowns and unknowns
Panetta did point out other advantages of CBDCs, though.
For example, he highlighted the lower costs of managing digital currency as opposed to a physically distributed currency.
“Since it would be completely dematerialized, a CBDC would have very few or no storage costs and would be a convenient way for households and firms to keep liquid wealth. Mattresses could be freed from their role of vaults!”
Moreover, CBDCs would be an asset “free of credit and liquidity risk.”
Such effects in his view would not “necessarily be disruptive for banks.” However, a number of other key issues surrounding digital currencies very well might.
For example, Panetta asked whether digital currencies should be traceable or “designed to guarantee, to the extent possible, anonymity.” On this, he raised ethical concern for a future where banks are able to trace all consumer transactions and make decisions on an individual’s creditworthiness based on such information.
“If central banks decided to make an asset – the CBDC – free of credit and liquidity risk, possibly remunerated, and available to anybody at no cost, their role in the economy would fundamentally change… Are central banks ready to play this new role and to deal with the attendant complexities? In the short term my answer is no.”
In the long term, the answer is unclear but Panetta affirmed the benefits of research to uncover the answer are certain and, “here to stay, independently of whether one day we will live in a world with digital cash.”