There is a series of articles between central bankers and diplomats these days.
Not all are favorable to cryptocurrencies…
Financial Times: The time to embrace central bank digital currencies is now
Martin Wolf, the chief economic commentator at the Financial Times has a pretty stern views on cryptocurrencies while he favors the creation of CBDCs (see our article Should Central Banks issue digital currencies? for the difference between the two):
“Fiat cryptocurrencies” like bitcoin are used in many cases to launder money, finance hack and other crimes, while they meet none of the criteria for usable money.
Stablecoins, aka CBDCs, are backed by a regular currency and are expected to sustain crisis and ‘runs’. They therefore need to be regulated by central banks. These new digital assets have the major benefit of giving access to financial systems to many un-banked individuals, although many will not gain access still.
In Mr. Wolf’s opinion, while cash remains the cheapest form of payment for small amounts), it makes sense to augment standard currencies with a new form of digital payment.
These new digital assets will still have its difficult questions:
- Should they be held at the central bank, or at usual private institution? The banks would then execute wholesale transactions with the central banks, as they do with fiat currencies now.
- Depositing CBDCs at the central bank would significantly reduce credit risk for retail, but at the expense of banks’ profitability.
- The public will not trust digital giant monopolies. Private banks already have a poor reputation. Imagine if Facebook was managing everybody’s cash…
The Hill: Bye-bye, bitcoin: It’s time to ban cryptocurrencies
Robert Manning, the diplomat from the Atlantic Council and the Department of State, went even further in his opinion published in The Hill on July 25th, in which he calls for a ban of cryptocurrencies, no less.
His main arguments:
- International banking officials, including the Bank for International Settlements (BIS), do not consider cryptocurrencies as currencies at all. They are speculative assets, not sustainable & usable money.
- Their lack of traceability makes them very valuable to hackers, cyber criminals and money launderers.
- The recent wave of ransomware attacks on hundreds of entities (food processors, critical infrastructure, hospitals, schools, many small businesses…) show the enormous risk enabled by cryptos.
- The libertarian world free of government oversight is a dream fraught with risks and chaos, as per Martin Wolf’s article in the FT.
Mr. Manning also calls for the creation of CBDCs, but he doesn’t see the need for cryptocurrencies at all. They are used by dark purposes, they have wild value swings and they cause serious environmental hazards (electrical consumptions).
Meanwhile 81 countries, representing 90% of the world’s GDP, are at various stages of developing CBDCs according to the Atlantic Council’s CBDC tracker. The four largest central banks ($, €, £ and ¥) are in this process, while China is further in the digitalization process of its currency. They are likely the way to go.
Mr. Manning also asks:
- where the cash should reside (at central banks or private banks),
- the privacy issues related to having your accounts at the Fed,
- if businesses should also have digital wallets
- and if countries will coordinate fight against crime in the digital space. China maybe?
Those questions are made for the G20, and would be a serious test to President Biden’s leadership.
The various articles:
In chronological order