90% of banks investigate CBDCs

The monetary vision of the future seems to involve exploring innovations based on trust in stable sovereign currencies and secure central bank payment systems. According to what is indicated by the Bank for International Settlements (BIS), this reveals that approximately 90% of central banks around the world are researching central bank digital currencies (CBDC).

The published and released report especially highlights the current capacity of sovereign fiat money to provide financial stability and public supervision, while criticizing that there is a certain lack of capacity on the part of digital currencies to carry out fundamental basic functions of money; and also for its opacity with regard to the existing responsibility before the general public.

However, the aforementioned report indicates that cryptocurrencies have a programmable nature, and this, like the elements of decentralized finance (DeFi), have some benefits that may justify integration into CBDCs.

It should be noted that there are currently three retail CBDCs and there are 28 central bank digital currency pilot projects. In this sense it is important to remember that some of them, like China, have everything to dominate; and it is that the digital yuan issued by the People’s Bank of China has a dominant position with 261 million users.

The Bank for International Settlements has positioned itself in favor of the use of centralized digital assets, considering that this does not happen as with some blockchain networks that have limited scalability, which leads to congestion in the network; and therefore, this influences users, who must face higher commissions.

The limitation of the digital euro by the European Central Bank

On the other hand, it must be taken into account that the European Central Bank (ECB) could make an important decision regarding the future digital euro, the central bank digital currency that the EU is already working on and that could arrive over the next two or three years.

The member of the Executive Board of the European Central Bank (ECB), Fabio Panetta, proposed that the central bank limits the total number of digital euros with the aim of preventing the European digital currency from being used as an investment method.

In a recent speech he stated that the ECB could limit the number of digital euros between 1 and 1.5 billion tokens. This limit would be part of a decision that would be made to discourage residents from holding tokens as an investment similar to crypto assets, with larger holdings subject to rates that are less attractive.

The analyzes that have already been carried out by the ECB, the preliminary analyzes indicate that maintaining the total holdings of digital euros between one trillion and one and a half trillion euros will avoid negative effects for the financial system and monetary policy.

This amount can be purchased with current holdings of banknotes in circulation; and in this way, taking into account the current population of the euro zone, which is about 340 million inhabitants, this would allow a provision of about 3,000 – 4,000 digital euros per capita.

Likewise, when it arrives, private sector companies will likely have to coordinate with public officials for an effective rollout of a digital euro. The importance of the CBDC being accepted both online and in physical stores has also been mentioned previously.