What’s needed before even discussing a wide implementation of central bank digital currencies (CBDCs) is a reality check, with several major, interconnected issues left to be solved first, stated a report by Deutsche Bank Wealth Management‘s Chief Investment Office (CIO).
“CBDC is likely to change the financial world we live in – and soon, with some schemes possibly implemented over the next few years,” argued the September 2020 report by the CIO of this major bank’s asset management unit. It added that this currency will have “major and profound implications for all economic actors which should not be underestimated,” including easier transactions, improved effectiveness of the monetary policy, more transparent and better corporate governance, etc. But challenges are many too, with privacy, scalability, and regulation being among the topics that need addressing, it said.
However, that’s what might await in the future “if” CBDCs are implemented. What can be observed at this stage, found the report’s authors, is that:
“We need a reality check here.”
There are a number of connected issues related to CBDCs, starting with the question of how to ensure their interoperability with existing infrastructures and processes.
But before even getting there, said the report, a problem is that this type of currency hasn’t had any broad empirical real-time tests. “There are obvious questions as to their short-term impact on capital markets and the reliability of new systems in times of crisis and/or major market disruption,” it argued.
Furthermore, CBDC issuance via Distributed Ledger Technology (DLT) might come with its own risks, given that this is “an evolving technology” that hasn’t yet been proven as “sufficiently robust” for a wide-scale implementation.
The authors also argued that “the way in which CBDC are implemented is difficult to predict, as are their implications.” But there are specific reasons that make their launch “likely” in the future, namely:
- a CBDC launch in one economically important / populous country might “force” others to quickly follow “because capital market adjustments would be expected”,
- a desire to maintain monetary sovereignty as privately-organized initiatives get greater public awareness.
The report claimed that CBDC could affect the international role of conventional currencies, adding that the most relevant reason behind the lack of widespread introduction of a CBDC by now is exactly the difficulty in predicting the effects of it operating in parallel with conventional currency systems.
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