One of the largest banks in Germany published a report on the prospects and risks of digital currencies issued by central banks. According to the bank’s experts, CBDC will reduce the level of privacy of payments and may lead to social unrest.
The launch of the central bank issued digital currency (CBDC) system will spark a monetary policy change and transform the traditional financial system as we know it, the Deutsche Bank report titled “Central Bank Digital Currencies: Reinventing Money” reads.
Central banks are always looking for ways to improve the effectiveness of monetary policy and data transmission channels. One problem for central banks is that when monetary policy changes, they have to wait for intermediaries (for example, commercial banks) to convey policy decisions to individuals and companies, often with a delay or in a modified form. CBDC can reduce the role of intermediaries. This can also be a serious challenge to commercial banks, because in this case their role as a financial intermediary will also change, since individuals will be able to have their own accounts with central banks. The role of commercial banks as intermediaries for collecting private savings, be they individuals or legal entities, could change significantly, at least they will have to offer higher interest rates than the central bank in order to attract customers.
But for widespread adoption, CBDCs must serve as a means of exchanging, measuring and maintaining value. Payments must be secure and simple, and universal access to such an asset must be guaranteed. Without an intermediary (such as commercial banks), monetary transactions may be executed at lower cost and possibly in real time.
Depending on the technology CBDC is based on, remittances in these currencies can be anonymous and completely decentralized. Deutsche Bank experts ironically note that this makes CBDC akin to conventional cash transactions. The most difficult thing may be the introduction of digital currencies in advanced economies in Western Europe, especially in Germany, where the skeptical attitude of the population towards digital payment methods dominates, and traditional cash payments are preferred.
“There is also a clear trade-off between privacy and convenience. Empirical evidence shows that younger age groups are less concerned (in general) about possible reductions in privacy and are more open towards new technology and the opportunities it may bring. This leads to an intriguing question. Will emerging market economies with their younger populations be more willing to adopt such a currency system with these pluses and minuses than developed countries?.. especially in western European countries like Germany, scepticism amongst individuals about digital payment methods is still high and traditional cash payments are still widely used. Implementation of CBDC could therefore, in a worst case scenario, encounter political resistance and, possibly, encourage social unrest.”