Cryptocurrencies have been a hot topic since the invention of bitcoin in 2008 at the latest. But digital currencies have long since lost their fascination. As a means of payment, they never really had any relevance for legal transactions in functioning states. As an investment, they are disenchanted with the scandals surrounding stablecoins and the FTX platform and the associated price collapses. The decentralized technology of the blockchain was always problematic, sometimes associated with insane energy expenditure, sometimes simply more cumbersome than central solutions.
Therefore, central banks should best narrow down their plans for Central Bank Digital Coins (CBDCs), i.e. the European Central Bank (ECB) should stop the digital euro. Their plans were driven in large part by fears that cryptocurrencies could become a significant competitor to government money. This concern reached a climax when Facebook announced plans for a private currency in 2019, which is now little heard of. Another concern was missing the connection to a future technology. Both of these things have now largely been resolved.
Then there was the objection that they didn’t want to give China too much of a lead in CBCDs. But China is not the measure of all things and with its own plans is probably also pursuing the goal of not letting its own tech giants like Tencent become too powerful.
risks instead of benefits
What CDBCs never had was a clearly recognizable benefit. You can already pay digitally today, in some countries like Great Britain notes and coins play practically no role in everyday life. A common argument was also that with the disappearance of cash, citizens would have less and less “central bank money” in their hands – i.e. money that was secured by the ECB’s balance sheet. Most citizens are not interested in that, they trust in the legally regulated deposit insurance.
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What has always been around CBDCs has been concerns about the risks to the financial system. And they are entitled. If the central bank competes with commercial banks in payment transactions and customer deposits, this can have serious consequences. One way to mitigate these risks would be to cap the amount of CBCD available in some way. But that would limit their usefulness even further.
Americans have always been relatively skeptical about CBDC concepts. They trust their dollar in the usual form. The ECB should show similar confidence. The danger, however, is that the concept will continue because it has already gone so far. But as the saying goes, “If your horse is dead, get off!”
More: Not much remains of the Bitcoin myth.