The deputy governor of the Bank of Italy said last Thursday that he believes Central Banks aren’t ready yet-at least in the short term to handle the effects of launching wholly digital currencies.
While delivering the keynote address for the SUERF and BAFFI CAREFIN Centre Conference at Bocconi University, Fabio Panetta became the latest personage to discuss the possibility of central banks issuing currencies digitally.
Panetta actually started off his speech by distancing the talk away from cryptocurrencies.
According to a transcript of the speech published by the Bank of International Settlements, Panetta was quoted as saying that:
“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.”
By this logic, CBDCs would also suffer the same volatility created by the possibility of government intervention with monetary policy. This is a concern that was initially thought of as one of the top causes for individuals to instead invest in crypto-assets such as bitcoin.
The deputy governor did point out several areas where CBDCs scored.
For one, he spotlighted the low cost of managing digital currencies as opposed to a physically distributed one. He says:
“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!”
He noted that as an asset, CBDCs would also be free of credit and liquidity risk.
Panetta is also concerned about the traceability of CBDCs. He raised an ethical concern during his talk, theorizing a future where Central Banks are able to trace all customer transactions and are able to make decisions on an individual’s credit rating based on that information.
He emphasizes that:
“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.”
Panetta concludes that in the long term, the answer is vague and unclear. He does continue, saying that further study and research are needed to uncover these answers.