EU Could Save €76 bln. With Central Bank Digital Currencies June 9, 2018 June 15, 2018 Tim Glocks
Analysis NewsJune 9, 2018 by Tim Glocks

EU Could Save €76 bln. With Central Bank Digital Currencies

Fabio PanettaWhile giving a keynote address focused on Central Bank Digital Currencies (CBDC), Fabio Panetta, deputy governor of the Bank of Italy, stated that cryptocurrencies does not constitute a liability to anyone, whereas CBDC would be a liability on the assets of the issuing central bank. The keynote address was delivered at Suerf/Baffi Carefin Centre Conference in Milan.

Panetta believes that CBDC can be used a means of payment, although he is ‘unclear’ about its advantages when compared with the prevailing digital payment mechanisms offered by financial institutions.

Panetta, however, sees a great advantage in using CBDC when considering the costs of production, transportation, and disposal of fiat money. According to the sources cited by Panetta, the costs associated with handling fiat money is roughly equal to 0.5% of EU’s annual GDP or 50% (€76 billion) of EU’s annual budget. The estimated efficiency gains of using CBDC would be much higher, if the digital asset is powered by a distributed ledger technology platform.

Panetta also highlighted the advantages of using CBDC as a store of value. According to him, it would virtually cost nothing to hold CBDC digitally, but offers great advantages as the virtual currency would be free of credit and liquidity risks. Over a period of time, CBDC will be the most preferred means of wealth storage, and could even overtake bank deposits.

Panetta also brushed off concerns that the traditional financial system will be severely affected by the introduction of CBDC by a central bank. He does not buy the argument that a CBDC will squeeze the net interest margin (NIM) of a commercial bank. Instead, he emphasizes that CBDC could result in the innovation of the existing financial frameworks and force the markets towards a “narrow banking model”.

During his speech, Panetta raised two important issues surrounding the CBDC, namely traceability and privacy. He believes that it is a question for the entire society and not for central banks alone. A month before the Bank of England published two staff working papers on CBDCs. While the first analyzed the impact of CBDC on the economy, the second paper expressed concerns about a possible Net Interest Margin squeeze on traditional banks.

AuthorTim Glocks

Tim is a retired professor in economics, this background has enabled him to provide a insight into the cryptomarket. His indepth analysis as well as news on legislations around the world will help you to understand what the state of play is.