{"id":218631,"date":"2022-08-29T12:00:42","date_gmt":"2022-08-29T11:00:42","guid":{"rendered":"https:\/\/www.transcend.org\/tms\/?p=218631"},"modified":"2022-08-27T03:30:10","modified_gmt":"2022-08-27T02:30:10","slug":"european-central-bank-says-cash-not-fit-for-digital-economy-dismisses-cbdc-privacy-concerns","status":"publish","type":"post","link":"https:\/\/www.transcend.org\/tms\/2022\/08\/european-central-bank-says-cash-not-fit-for-digital-economy-dismisses-cbdc-privacy-concerns\/","title":{"rendered":"European Central Bank Says Cash \u2018Not Fit\u2019 for Digital Economy, Dismisses CBDC Privacy Concerns"},"content":{"rendered":"
\"\"<\/a>

The euro logo is seen in front of the European Central Bank (ECB) in Frankfurt am Main, Germany, on Jan. 10.
(Daniel Roland\/AFP via Getty Images)<\/p><\/div>\n

25 Aug 2022 – <\/em>In the digital economy, cash is no longer a useful tool, and a central bank digital currency<\/a> (CBDC) is the \u201conly solution\u201d to continue the existing monetary system, according to a new paper from the European Central Bank<\/a> (ECB).<\/p>\n

The eurozone\u2019s central bank recently published a paper<\/a> titled \u201cThe Economics of Central Bank Digital Currency,\u201d in which the authors assessed the implications for the financial system and examined data privacy and digital payments.<\/p>\n

A CBDC, such as a digital euro, would be the \u201conly solution\u201d to facilitate a \u201csmooth continuation\u201d of the present monetary system, the researchers concluded. Amid debate\u00a0that CBDCs would limit the credit supply and be a disruptive force in financial markets, the paper rejects those concerns as unfounded.<\/p>\n

Digital money is critical in a digital economy, the ECB noted. Since \u201ccash is losing its appeal as efficient means of payment,\u201d a CBDC is a necessary tool to install. While the research identifies drawbacks of instituting a uniform digital monetary system, such as the sluggish pace of settlements, market developments, and adoption, the paper notes that \u201ca digital update of cash\u201d is crucial to advancing \u201cthe two-layer system of public and private money.\u201d<\/p>\n

Ultimately, cash possesses \u201clarge economic costs without clear benefits,\u201d so \u201cit is by construction not \u2018fit\u2019 for the digital age.\u201d<\/p>\n

Digital money might generate privacy concerns, the authors warn. However, researchers point to a \u201cprivacy paradox\u201d: consumers will emphasize the importance of privacy in surveys, but they will give away personal data for free or in exchange for small rewards.<\/p>\n

\"euro<\/a>
A woman holds euro banknotes in this photo taken on May 30, 2022.
\n(Dado Ruvic\/Reuters)<\/strong><\/figcaption><\/figure>\n

\u201cFrom a public policy perspective, these observations warrant further scepticism concerning the ability of market forces to reach efficient levels of privacy protection,\u201d the report notes.<\/p>\n

The paper also rejects cryptocurrencies and stablecoins, calling them a \u201cthreat to monetary sovereignty.\u201d It welcomed President Joe Biden\u2019s digital asset working group to put together a regulatory framework for the crypto sector, as well as the myriad of other regulations being considered worldwide.<\/p>\n

\u201cThese proposals would bring new forms of digital money into the regulatory perimeter and help to address some of the major concerns related to monetary sovereignty and financial stability,\u201d the paper states.<\/p>\n

The Rise of CBDCs<\/h2>\n

Across the globe, many governments and central banks have been studying CBDCs as a potential successor or complement to physical money.<\/p>\n

In January, for example, the Federal Reserve released<\/a> a discussion paper titled \u201cMoney and Payments: The U.S. Dollar in the Age of Digital Transformation.\u201d It examined the pros and cons of a possible U.S. CBDC.<\/p>\n

While delivering his semiannual monetary policy report to Congress in June, Fed Chair Jerome Powell recommended that a digital dollar is \u201csomething we need to explore as a country\u201d that \u201cshould not be a partisan thing.\u201d<\/p>\n

\u201cIt\u2019s a very important potential financial innovation that will affect all Americans,\u201d he told the House Committee on Financial Services. \u201cOur plan is to work on both the policy side and the technological side in coming years and come to Congress with a recommendation at some point.\u201d<\/p>\n

He added that if the United States were to create a digital dollar, it would need to be issued by the federal government and not by a private institution.<\/p>\n

\u201cOne question around CBDCs is do we want a private stablecoin to wind up being the digital dollar? I think the answer is no,\u201d Powell said. \u201cIf we\u2019re going to have a digital dollar, it should be government-guaranteed money, not private money.\u201d<\/p>\n

Congress is requesting faster action on a digital dollar. A bipartisan group of members of Congress has urged the Fed to speed up work on a CBDC.<\/p>\n

\u201cWith countries around the world competing to deploy digital versions of their own currencies, America can\u2019t be left behind,\u201d Waters said in a statement<\/a> in May before a hearing on the advantages and risks of CBDCs.<\/p>\n

Last month, ECB President Christine Lagarde championed a digital euro, stating that digitizing the official currency in 19 of the 27 member states of the European Union can \u201cachieve\u201d stability and public access.<\/p>\n

A digital euro would complement cash rather than replace it, according to Lagarde. She also pointed out that a CBDC would only be successful if it addressed the needs of consumers and businesses and ensured that privacy safeguards were established from the beginning.<\/p>\n

That, Lagarde co-wrote in a blog post<\/a>, ensures that a digital euro \u201cserves as an anchor for the whole payment system.\u201d<\/p>\n

US, Europe Take on Digital Yuan?<\/h2>\n

But while the United States and Europe might be attempting to take the lead on such a critical issue in the global monetary system, market analysts note that advanced economies might be responding to action by China.<\/p>\n

After seven years of intensive study, the People\u2019s Bank of China (PBoC) unleashed the digital yuan in 2021. The e-yuan is a CBDC that is trying to replace a portion of the cash presently in circulation, as fewer Chinese consumers use physical money. It\u2019s estimated<\/a> that cash represented about one-quarter of point-of-sale transactions in 2020, down from nearly 75 percent in 2012.<\/p>\n

Some aver that Beijing is seeking to dismantle the global currency system, but officials say otherwise.<\/p>\n

While speaking at a Shanghai forum in December 2020, former PBoC head Zhou Xiaochuan noted<\/a> that technology is the main goal, not currency supremacy. However, Richard Turrin, author of \u201cCashless: China\u2019s Digital Currency Revolution,\u201d told<\/a> CNBC in March that a digital yuan could challenge the U.S. dollar in international trade settlements in the next decade.<\/p>\n

\u201cRemember, China is the largest trading country, and you\u2019re going to see digital yuan slowly supplant the dollar when buying things from China,\u201d he said. \u201cIf we go about five to 10 years out, yes, the digital yuan can play a significant role in reducing the dollar\u2019s usage in international trade.\u201d<\/p>\n

The yuan has become one of the most popular currencies in cross-border transactions in 2021, representing 2.7 percent of global payments, the highest level in six years, according to January statistics<\/a> from the Society for Worldwide Interbank Financial Telecommunications (SWIFT). The U.S. dollar accounted for more than 40 percent of international transactions.<\/p>\n

Any attempt to dethrone the U.S. dollar as the chief international reserve currency would take time. According to the International Monetary Fund\u2019s (IMF) Currency Composition of Official Foreign Exchange Reserves (COFER) data<\/a>, dollars accounted for nearly 60 percent of reserves in the first quarter of 2022. The yuan represented less than 3 percent.<\/p>\n

Do CBDCs Offer Risks?<\/h2>\n

But while many public policymakers are ebullient over the prospect of CBDCs, critics acknowledge that there are many drawbacks.<\/p>\n

The primary risk for CBC is an erosion of privacy. Whether by the federal government or law enforcement agencies, every consumer\u2019s financial transaction can be monitored by the state. As with China\u2019s nationwide credit score system, experts warn that it isn\u2019t hard to see the government imposing digital money to facilitate the institution of social monitoring programs.<\/p>\n

\u201cThe end of cash and the insta-analysis of financial transactions enable surveillance, state control, and, eventually, social engineering on a scale never thought possible,\u201d Human Rights Foundation chief strategy officer Alex Gladstein notes<\/a>. \u201cWhen the government can take financial privileges away for posting the wrong word on social media, saying the wrong thing in a call to parents, or sending the wrong photo to relatives, individuals self-censor and exercise extreme caution.<\/p>\n

\u201cIn this way, control over money can create a social chilling effect.\u201d<\/p>\n

Another factor is the faster adoption of monetary policies, especially in times of crisis such as the coronavirus pandemic.<\/p>\n

\u201cThe switch also simplifies the execution of monetary policy\u2013the central bank can immediately change supply by issuing or canceling codes in its own accounts,\u201d wrote<\/a> Ajay Mookerjee at the Harvard Business Review. \u201cAnd by paying interest on CBDC holdings, however, the central bank can directly transmit monetary policy to households, instead of influencing commercial deposit rates through the rates it offers banks on their reserve accounts with the central bank.\u201d<\/p>\n

Although proponents contend that it could support the financial system, the World Bank has warned that it actually threatens the \u201cfinancial integrity\u201d of today\u2019s banking infrastructure.<\/p>\n

\u201cThe introduction of CBDC could disrupt the existing financial-intermediation structure. In addition, depending on design and country context, CBDC could pose risks to financial stability, financial integrity, data protection and privacy, and cyber resilience,\u201d the World Bank explained in its \u201cSouth Asia Economic Focus\u201d report<\/a> in April.<\/p>\n

In the end, CBDCs could turn out to be a costly investment that fails to achieve anything of substance, the Center for European Reform says.<\/p>\n

\u201cWithout widespread adoption, a CBDC will be an expensive failure, and will do little to advance central banks\u2019 goals,\u201d senior research fellow Zach Meyers stated<\/a>. \u201cThe EU shouldn\u2019t be distracted by the prospect of a digital euro\u2014which may sound impressive and exciting, but may give Europeans few benefits they can\u2019t enjoy already.\u201d<\/p>\n

With more nations assessing CBDCs and other markets already implementing it into the fabric of their economies, a monetary experiment may be unfolding in real time.<\/p>\n

____________________________________________<\/p>\n

\"\"<\/a>Andrew Moran covers business, economics, and finance. He has been a writer and reporter for more than a decade in Toronto, with bylines on<\/em> Liberty Nation, Digital Journal, and<\/em> Career Addict. He is also the author of<\/em> “The War on Cash.”<\/p>\n

 <\/p>\n

Go to Original – theepochtimes.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

25 Aug 2022 – In the digital economy, cash is no longer a useful tool, and a Central Bank Digital Currency is the \u201conly solution\u201d to continue the existing monetary system, according to a new paper, \u201cThe Economics of Central Bank Digital Currency.\u201d<\/p>\n","protected":false},"author":4,"featured_media":218633,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[146],"tags":[232,1246,354,1506,1268,562,176,1070,339],"class_list":["post-218631","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","tag-capitalism","tag-cryptocurrency","tag-economics","tag-european-central-bank","tag-european-union","tag-finance","tag-money","tag-plastic-money","tag-trade"],"_links":{"self":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/218631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/comments?post=218631"}],"version-history":[{"count":0,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/posts\/218631\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media\/218633"}],"wp:attachment":[{"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/media?parent=218631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/categories?post=218631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.transcend.org\/tms\/wp-json\/wp\/v2\/tags?post=218631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}