The Centre for European Reform (CER) asks why central banks are pursuing central bank digital currencies (CBDC) in a recent post. The CER is a pro-European think tank that aims to make the European Union (EU) work better. “The EU should not be distracted by the prospect of a digital euro – which may sound impressive and exciting, but may give Europeans few benefits they cannot enjoy already,” states the post written by CER Senior Research Fellow Zach Meyers.
He acknowledges some of the concerns that central banks aim to address, such as the dominance of private credit card firms. And he recognizes that consumers might look to riskier private digital currencies as alternatives.
However, he makes several points that central bankers also acknowledge. A key one is whether consumers will widely adopt a CBDC. And he doesn’t entirely accept the concept of a CBDC acting as an ‘anchor’ without broad adoption.
He mainly views competition through the lens of the dominance of credit card firms. A digital euro will likely have limits on holdings, which other payment solutions don’t have. However, he doesn’t mention that automation could nullify this as a limitation because users could automatically sweep money from a bank account into a CBDC.
The only way Meyer sees governments attracting users to a CBDC is with cashback and other enticements that are currently available to cardholders. However, what will keep them using a CBDC?
Privacy is one benefit that’s explored while acknowledging a CBDC won’t be anonymous for anti-money laundering reasons. Consumers will view the privacy level as equivalent to bank accounts, given banks will be intermediaries. Meyer didn’t address whether the average consumer values privacy since cryptocurrency transactions are available for anyone to interrogate.
While consumers are the biggest challenge, retailers won’t be that easy to attract, given their preference for fewer payment options rather than more. However, cheaper transactions might appeal. Meyer notes that only some EU states force retailers to accept legal tender.
The CER researcher suggests potentially adopting blockchain to encourage greater competition. But at the same time, he envisages more innovation resulting in a bewildering array of options available to a consumer.
Many of the issues raised by Meyers are food for thought, and central bankers are already considering most.
Each jurisdiction is adopting different approaches. For example, China has tried the cash incentive route and is deploying a variety of use cases, both government-based and private sector. And Brazil is trialing several use cases to see whether programmability and other features can add value.