What are the problems with issuing central bank digital currency directly to the public?

This article comes fromFT, original author: Izabella Kaminska

Odaily Translator |

Odaily Translator |

More recently, cryptocurrency developers have begun turning their attention to an area they once disdained: stablecoins. Of course, to some extent, this may also be an inevitable product of the development of the cryptocurrency industry to a certain stage.

For speculators, the higher the price volatility of cryptocurrencies, the more attractive they are. However, in addition to bringing room for speculation, price fluctuations will always have some negative impacts on the healthy development of the industry. If everyone uses different types of cryptocurrencies with different values, it will be difficult for users to find a value balance among them, and the overall value of the cryptocurrency industry will also be weakened.

Stablecoins, on the other hand, seem to be one of the best solutions to the above problems. To avoid the price volatility common to cryptocurrencies, stablecoins are pegged to traditional assets, allowing their value to be pegged to government-issued fiat currencies, such as the U.S. dollar, euro and yuan. Speaking of this, we have to mention one of the most concerned stablecoins today: Facebook's prominent Libra. Libra is a new virtual cryptocurrency launched by Facebook. It is an encrypted digital currency that does not pursue a stable exchange rate against the US dollar, but pursues a relatively stable actual purchasing power. A basket of low-volatility assets denominated in four fiat currencies, USD, GBP, EUR and JPY, was initially used as collateral, with GBP and SGD later added. Of course, there are other stablecoins on the market that are equally popular, such as Tether (which works a bit like non-cryptocurrency payment systems like Kenya’s Mpesa and China’s WeChat), which has more than $4 billion in U.S. dollar assets.

Essentially, the rise of stablecoins can be seen as a victory for fiat currencies of the governments behind them over cryptocurrencies. However, as the "popularity" of stablecoins continues to grow, stablecoins issued by non-banks have gradually begun to pose a threat to the money supply controlled by the central bank. If stablecoins are backed by safe assets such as government bonds, rather than cash deposits, the situation may be more serious than we think.

Some central banks (such as the People's Bank of China) have stipulated that non-bank payment service providers such as WeChat must hold cash instead of government bonds to back their payment currencies, and if reserves are involved, they must also be deposited with the central bank instead of government bonds. in private institutions.

In addition, some central bank governors are considering issuing their own "competitive digital currency", which is actually the central bank digital currency (CBDC). They believe that the reason why stablecoins can achieve such a large-scale growth actually reflects that traditional banks do not Failure to meet people's demand for low-cost, frictionless cross-border payments has led to a market gap in this area.

Although the official statement has never been made, in theory, the central bank can indeed fill the so-called "market gap" by issuing digital currency to the public, and thereby reduce the tension between stablecoins and non-bank institutions (such as technology giants). growing competition among them.

The issuance of central bank digital currency is easy to achieve, because the central bank has provided efficient digital real-time settlement services for commercial banks under their supervision. Not only that, supporters of central bank digital currency also believe that this method will bring more benefits, such as allowing the central bank to implement negative interest rate policies more widely when necessary, and providing more safe assets for the market.

However, there is also good reason to believe that central banks will basically provide retail transactions through licensed and controlled financial institutions, rather than providing monetary services directly to the public. So, what is the problem with the central bank issuing digital currency directly to the public?First, central bank digital currencies have competition and privacy concerns.

The risk here is that the issuance of digital currency by the central bank may make it more difficult for commercial banks to attract funds, thereby weakening the ability of these banks to provide loans. Once this happens, it may in turn put pressure on the central bank itself, prompting them to directly enter the loan market to compensate. True, central banks can be the lowest-cost provider of retail payments and loans, but that doesn’t seem to do much good if the central bank starts operating like a monopoly state-owned bank.Second, even without competition concerns, central banks should be cautious about directly offering central bank digital currencies to the masses.

Because in today's competitive monetary environment, it is not easy to provide high-quality monetary services that meet modern regulatory standards. The central bank itself does not have the professional ability to be profit-oriented and retail-oriented.Again, if the central bank really issues digital currency to the public, it will force them to deal with all kinds of cumbersome issues

, such as public complaints, user inquiries, and "KYC" (know your customer) and anti-money laundering checks, etc. And central banks often don't have much experience in these areas, and there's no guarantee they can manage them in a more efficient and cost-effective way.Finally, the central bank's digital currency will also face the problem of "privacy paradox".

If the central bank can guarantee the privacy of transactions, it is possible to "lure" colleagues of government agencies to engage in illegal activities such as money laundering. This is obviously intolerable, so at least from this point of view, the central bank's digital currency cannot achieve complete privacy. Some people may say that Facebook Libra has the ability to ensure privacy, but don't forget that Libra is extremely intrusive and may pose a threat to legal currency sovereignty. Of course, Facebook is not a country, so central banks are not eager to compete with the likes of Facebook, Tether, or WeChat, nor outright ban them from providing services to the masses.

In this regard, the approach of the People's Bank of China is very worthy of reference, because they have incorporated digital payment into the business scope of the central bank, and they have also made full use of what they are best at-management stability-to constrain the use of daily payments. digital currency for payment.