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At a conference hosted by the National Bank of Ukraine, several central bankers rejected the need for CBDCs, arguing blockchain technology offered no benefits over other digital alternatives.
After Positive Studies, Canada’s Central Bank Dismisses DLT
Only days after Sweden’s central bank, Riksbank, launched a one-year trial of the e-krona, representatives of several central banks dismissed the value of using blockchain technology in centrally-issued digital currencies.
Ukraine’s central bank tested a blockchain-based digital currency over a few months in 2018. The country’s central bank claimed the trial found “no fundamental advantages in using specifically the DLT [distributed ledger technology] to build a centralized e-hryvnia issuance system.”
The Canadian central bank representative also dismissed the value of a CBDC. This comes despite earlier explorations by the Bank of Canada, which found that a CBDC offered to the public, could benefit the economy by stimulating a more competitive banking sector.
According to a paper published by the central bank in May 2019 a:
“[CBDC] can improve the efficiency of bank intermediation and increase lending and aggregate output even if its usage is low, i.e., the CBDC serves as an outside option for households, thus limiting banks’ market power in the deposit market… with a proper interest rate, CBDC can raise bank lending by around 7% and increase output by around 1%.”
Canada’s central bank undertook a pilot, Project Jasper, in early 2016 to explore how distributed ledger technology might impact payment infrastructure in the country. The project was conducted by the central bank alongside Payments Canada, its member financial institutions, and others.
Scott Hendry of the Bank of Canada told attendees at the Kyiv conference, “you don’t need a DLT to make a central bank digital currency.”
Despite IMF Recommendations, Central Banks Cool On CBDCs
Harro Boven, policy advisor to the Dutch central bank, questioned the logic of a single party issuing a blockchain-based currency, given the purpose of DLT to provide trustless transaction capabilities:
“The essence of the DLT infrastructure is that no single party should be trusted enough, but don’t we just trust a central bank to maintain the integrity of the global ledger?”
The doubts expressed over the viability or usefulness of centrally-issued digital currencies came within months of the IMF and the Bank for International Settlements (BIS) urging policymakers worldwide to explore blockchain-based digital currencies.
Last month, former CFTC chair J. Christopher Giancarlo co-created the non-profit organization, the Digital Dollar Project. The project’s aim is to advocate for the exploration of a U.S. CBDC.
The ECB is also investigating the role CBDCs could play in the future of monetary policy and payment infrastructure.
Hype or Libra-Inspired Panic?
The tepid attitude toward CBDCs suggests their sudden rise to stardom was inspired by fear rather than the efficiencies they promised.
The Libra Foundation’s intention to launch a stablecoin backed by a basket of fiat currencies prompted regulators into action worldwide. In many ways, Libra inadvertently issued a call for innovation among legacy banking institutions.
With Libra’s prospects of ever launching now under question, the urgency for central banks to create CBDCs appears to have waned.
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