Via Deutsche:
Central banks are looking into cryptocurrencies and the underlying distributed ledger technology, as they carry responsibility for issuing physical cash, overseeing and/or providing payment clearing and settlement systems, conducting monetary policy and safeguarding financial stability.
In the areas of payments and savings, digital cash would compete against bank deposits, physical cash and private cryptocurrencies to win over consumers.
Unless its use was strongly pushed by regulation, digital cash would need to convince users by offering better and more convenient payment solutions than other payment systems. In particular, it would need to match current low fee levels and high safety standards for regulated consumer payments.
In an environment of high trust in public institutions, consumers would probably not be concerned if digital cash offered little data privacy.
For savings purposes, consumers would simply base their choice between digital cash and bank deposits on the difference in interest rates.
However, in times of financial or political uncertainty, people may think beyond convenience and yield.
In case of financial turmoil, consumers can use central bank money – physical or digital cash – as a safe haven.
However, if fundamental trust in monetary and political stability were lost, people would probably turn away from any form of the sovereign currency in favour of other alternative assets or private cryptocurrencies.
…But for the purpose of everyday retail payments, many consumers value convenience over data privacy. Many households may find it acceptable to use crypto euros even if they are required to register with their true identity, especially if registration is not too cumbersome and payments are convenient. This would help a central bank to design digital cash in a way that meets anti-money laundering requirements.
If a payer has doubts about the trustworthiness of his counterparty, he may not want to reveal much personal information, e.g. to prevent spam advertisement or potential identity theft. In case of a general lack of trust in the government, the legal system of a country or the currency, payers will seek third-party anonymity. They would not want authorities to be able to monitor their payments. In such an extreme case, digital cash issued by the central bank will surely not be the payment type of choice to avoid state surveillance or tight capital controls. Private cryptocurrencies, though, are well positioned to enable citizens to circumvent state-controlled payment systems, as is happening in China, Zimbabwe or Venezuela.
…We would use crypto euros for payments if they offered a higher service level than other payment options at comparable levels of cost and safety. With DLT still in its infancy and competitive private retail payment solutions available, this will hardly be the case. CBDC’s chance of gaining substantial market share by catering to unserved payment needs is low given the popularity of established digital payment means and ongoing innovation by incumbent and new service providers. Moreover, it remains an open question whether DLT can deliver the same level of cost efficiency and safety as existing technical set-ups. For day-to-day use, privacy concerns have proven to be of minor relevance to consumers. So even if CBDC was designed with a high degree of anonymity, this would not be a competitive edge – at least not for legal transactions. Unless the acceptance of CBDC is pushed by regulation, CBDC is not likely to gain sufficient reach to become a competitive payment network.
But what about crypto euros for saving purposes? In an environment of popular trust in public institutions and financial stability, digital cash or bank deposits will be the most convenient options for consumers. The biggest difference between these two would be a potential difference in remuneration. The highest yielding digital money will simply be the most attractive.
As long as there is “only” doubt about the liquidity of the banking system, physical and digital central bank money will be perceived as a safe haven until the crisis is resolved.
If fundamental trust in monetary and political stability is lost, though, digital cash will simply be sovereign currency. In order to escape it, consumers would have to turn to private cryptocurrencies or other alternative assets.
In such a circumstance of total monetary and political chaos you can be quite certain that government will do several things:
- declare martial law;
- declare war on each other;
- seize all crypto exchanges and
- ban gold ownership.
The question one must ask then is: is that a circumstance in which holding an intrinsically worthless crypto with zero physical security will be worth something?
