20 April 2018
https://www.avoka.com

Central bank digital currencies could cut costs for merchants and consumers

01 December 2017  |  12428 views  |  0 Bitcoin

A central bank digital currency (CBDC) has the potential to become a cheaper and easier to use alternative to cash and cards, according to research from the Bank of Canada.

In a new paper, researchers Walter Engert and Ben Fung look into the benefits and pitfalls of a non-interest bearing CBDC made available to the general public, examining six reasons that central banks might consider issuing their own digital currencies.

Of the six, increased contestability in payments is deemed by the authors as the most convincing. CBDC could offer an alternative not only to bank notes, but to cheques, debit and credit cards and online transfers.

CBDC would be less costly for consumers than cash, says the paper, while for merchants it would be cheaper than cash and cards because the central bank would not charge any transaction fee.

CBDC could also help with financial stability because it would be "outside money" - as opposed to "inside money" - money claims backed by private credit. However, the paper notes that a shift from bank deposits to CBDC could also have an impact on bank funding and credit provision, which could hurt financial stability.

The researchers suggest that a CBDC could help with financial inclusion in developing countries but note that other options are available for this, pointing to Kenya's M-Pesa as an example.

The anonymity or pseudonymity of a CBDC means that it has no value in inhibiting criminal activity and claims that it could reduce the effective lower bond on interest rates do not convince. Meanwhile, there is no "meaningful concern" in most countries about preserving seigniorage or maintaining adequate central bank money for the general public.

The paper suggests central banks proceed with caution and concludes with a question:

"[T]o the extent that demand for bank notes decreases over time...an interesting question is whether a central bank liability that is accessible to the general public, like cash or CBDC, is desirable from a social-welfare perspective. Is it sufficient for a central bank to supply only reserves to qualified financial institutions? Put differently, is a 'cashless society' a sound outcome?"

Read the full paper:» Download the document now 686.3 kb (Chrome HTML Document)

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

ECB and Bank of Japan conclude DLT not ready for RTGS systems

ECB and Bank of Japan conclude DLT not ready for RTGS systems

07 September 2017  |  15079 views  |  0 comments | 11 tweets | 16 linkedin
Bank of Canada says DLT not ready for interbank payment system

Bank of Canada says DLT not ready for interbank payment system

25 May 2017  |  15836 views  |  1 comments | 27 tweets | 25 linkedin
CAD-coin V Fedcoin: The future of central bank digital currencies

CAD-coin V Fedcoin: The future of central bank digital currencies

05 April 2017  |  12989 views  |  0 comments | 7 tweets | 14 linkedin
Fed governor cautions on central bank-issued digital currencies

Fed governor cautions on central bank-issued digital currencies

06 March 2017  |  8757 views  |  1 comments | 12 tweets | 10 linkedin
Private digital currencies need regulation to flourish - Bank of Canada research

Private digital currencies need regulation to flourish - Bank of Canada research

20 February 2017  |  12120 views  |  0 comments | 13 tweets | 10 linkedin
Central bank digital currency could boost GDP - BofE

Central bank digital currency could boost GDP - BofE

19 July 2016  |  7479 views  |  0 comments | 17 tweets | 11 linkedin
Bank of Canada ponders bitcoin's effect on monetary policy

Bank of Canada ponders bitcoin's effect on monetary policy

17 November 2015  |  12655 views  |  0 comments | 16 tweets | 10 linkedin

Related company news

 

Related blogs

Create a blog about this story (membership required)
https://www.capgemini.comVisit http://response.ncr.comVisit http://wup.digital

Top topics

Most viewed Most shared
Revolut launches spare change savings toolRevolut launches spare change savings tool
9619 views comments | 14 tweets | 19 linkedin
TransferWise becomes first non-bank to open settlement account with BofE RTGSTransferWise becomes first non-bank to ope...
8802 views comments | 17 tweets | 31 linkedin
Barclays Bank sets up tech venture unitBarclays Bank sets up tech venture unit
8376 views comments | 16 tweets | 22 linkedin
Top tier banks pass first transactions on trade finance blockchainTop tier banks pass first transactions on...
8369 views comments | 18 tweets | 23 linkedin
Goldman Sachs acquires PFM startup Clarity MoneyGoldman Sachs acquires PFM startup Clarity...
7937 views comments | 9 tweets | 10 linkedin

Featured job

Six-Figure Base + OTE + Benefits
London, UK

Find your next job