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Saturday, January 22, 2022

Success factors pointed out for CBDCs by ECB

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Recently, the European Central bank published a paper in various conditions under which the central bank digital currencies can come into use for the common good of people. Also, they have given up the example of the Eurozone on Digital euro, which has been successfully working for a very long period now. Also, this currency is now to be implemented in the economy of Europe. Therefore, it will boost activities at a significantly better level. Apart from this, the better point is kept aside.

On the other hand, the negative points are also mentioned in this paper. For example, the bank pointed towards the optimistic and damaging of using the central bank digital currency to ultimately be evaluated and put to use in the best way possible. Also, it mentioned the dangerous possibilities of crowding out some private sector players in the Department of cryptocurrencies.

According to European Central Bank, digital currency should work in payment options rather than investments. It has raised concerns regarding the spread of private sector cryptocurrencies worldwide. They are mainly affecting the financial system of different countries, making Financial tasks difficult for the banking system. Also, it said that cryptocurrencies, regulated by the central bank of different nations, can work as a widespread medium of payment and exchange. Also, people can use it in a better way for a store of value. At the same time, it also mentioned that digital currencies are regulated by central banks like Digital euro Cannot be a suitable means of investment. Crowding out the payment solutions driven through privately-owned companies can degrade the banking system.

The concerned document was raised this week, approved by some of the highest authorities of the central bank of Europe. The different issues addressed by different experts in this paper were to avoid the risk that comes with the intervention of bitcoin code with the fiat currencies. Also, how it will affect the world and the significant economies to explore and develop can be done best. First of all, the paper released by the central bank of Europe identifies the successful implementation of different central bank digital currencies. First of all, it wants to mention merchant acceptance at a broader level so that users can pay with digital currencies anywhere they want. Also, a certain fee will be implemented on the transactions you make with every digital coin. It makes digital going different from the Physically existing paper currency.

Even though both digitals and cryptocurrency from the central bank of Europe have monetary value and legal tender, certain things make both of them different. According to a higher official of the central bank of Europe, Cash is one of the most impractical currencies when it comes to internet commerce. However, when it comes to central bank digital currencies, they may act as legal tender, but they will also face some exceptions because all the merchants do not have the means to accept digital payments. One of the fundamental reasons digital currencies by central banks are considered successful is the efficient distribution. The digital currency will be distributed by some highly regulated bodies like the central bank and the payment providers that have the authority from the government. To encourage the spread of digital currency across the nation, it will incentivise different uses.  

Consumers have a very high demand for digital currencies driven through privately-owned companies. However, when central bank digital currencies come into force, people will want them to own. However, consumer demand plays a crucial role in the success of anything globally. For example, the European Central Bank’s slogan describes the central bank digital currency’s pay anywhere, pay safely and pay privately. Also, highly motivated Europe in transactions like peer-to-peer payments will be made using digital currencies, which motivates people to use them.

Risk factor prevention

The most critical risk factor associated with the CBDC is its excessive holding. Some measures can prevent the excessive flow of CBDC, like limited convertibility and also putting up some ceiling on the amount that anyone can hold individually. Triggering into the process of bank Disintermediation due to the widely used coins can also be solved through the functional scope. The functional sector available for people should never be too broad and never be too low.

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