Deputy Governor of the Bank of Italy Fabio Panetta focuses on some general issues related to the digital transformation of society, the pros and cons of digital cash (as a means of payment and store of value) and recall some of the open issues regarding central bank digital currencies.
The technological revolution is pushing towards a digital representation of many objects in daily lives. Banknotes might be next in line. However, there are still many uncertainties on that front. Some of them are economic in nature, such as the efficiency of the payment system and financial stability. Others are related to individual rights, such as the right to privacy.
Society as a whole would do well to decide on how to tackle the latter before the central bank steps in. Other issues are of a legal nature. Can a central bank issue a new form of currency without explicit authorization by the government? If the CBDC is legal tender, does this mean that everybody will need to have the technical means to accept it? In many countries new laws may be required before any concrete steps towards a CBDC are taken. For a central bank, issuing a digital currency is like travelling in a new land: the path to take will be chosen at the same time as the map is drawn. The many uncertainties involved will undoubtedly make the journey exciting and full of discoveries, though a substantial amount of prudence and wisdom will still be required. All in all, this is hardly going to be a purely technical decision. Society as a whole, through its political bodies, will need to be involved.
Whether central banks should issue digital currencies – and with what characteristics – remains an open question. Mr Panetta remains convinced that physical cash will continue for quite some time to be part of the payment system. It is hard to dispute that money is probably one of the most important and useful social constructs, one that has been with us for around 3,000 years and is still very much in use. Cash is by far the dominant means of payment, both in the euro area and elsewhere, and demand for it has been on the rise in most advanced economies in the last decade. Coins and banknotes have proven to be a resilient technology, it may be too early to call for their complete retirement.
While the jury is still out on whether there will be a CBDC, the debate is already bringing benefits. Many central banks, including Banca d’Italia, are experimenting with new technologies such as DLT and Artificial Intelligence, studying how they work and how they can be put to productive use. This research contributes to the advancement of the technological frontier, and helps make the financial system more resilient to technological and cyber risks. These benefits are here to stay, independently of whether one day we will live in a world with digital cash.
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