The discussion about central bank digital currencies (CBDC) has gained an impressive momentum. So far, however, the main focus has been on the macroeconomic implications of CBDCs and the narrow perspective of developing a digital substitute for cash. This paper adds a microeconomic dimension of CBDC to the discussion. We provide an overview of the existing payment ecosystem and derive a systemic taxonomy of CBDCs that distinguishes between new payment objects and new payment systems. Using our systemic taxonomy, we are able to categorize different CBDC proposals. In order to discuss and evaluate the different CBDC design options, we develop two criteria: allocative efficiency, i.e. whether a market failure can be diagnosed that justifies a government intervention, and attractiveness for users, i.e. whether CBDC proposals constitute attractive alternatives for users compared to existing payment objects and payment systems. Our analysis shows that there is no justification for digital cash substitutes from the point of view of allocative efficiency and the user perspective. Instead, our analysis opens the perspective for a retail payment system organized or orchestrated by the central bank without a new, independent payment object.
Recently, the Digital Euro Association, a thinktank around the digitization of money, was launched to help shaping the discussion around the digitization of money — especially in the Euro area — to stimulate public discourse and act as a unified voice on digital money. In this article, we discuss current initiatives around the digitization of money and outline how the Digital Euro Association fits into this discussion.
Introduction of central bank digital and smart currency is just as much a political, macroeconomically and financial stability issue than a technology issue.
In this paper, the monetary-financial implications of two versions of Libra are analysed, i.e. Libra 1.0 and Libra 2.0. First, I briefly discuss how technological developments in monetary history have reshaped the payments landscape and how Libra is going to challenge the current bank-based ecosystem. Second, I identify some risks stemming from the current monetary-financial system and I review the Euro Area's regulatory framework to control these risks. Third, I assess how a wide acceptability of Libra's 1.0 and 2.0 could challenge the current monetary-financial structure and therefore the risks associated. Finally, I propose a Synthetic CBDC issuance, i.e., a narrow banking approach, to limit the new risk associated with the introduction of Libra 2.0.
In this report the DEA Partner dGen examines a potential next step for one pillar of the economy - money itself. Central Bank Digital Currencies (CBDCs) represent a means of bringing money into a digital future, and are a point of interest for reserve banks around the world. A CBDC could be the next innovation in money - a boat no country wants to miss.
Changes to payments have been brewing for a while now. But, while the impact of a major digital currency, like the planned digital Yuan, is expected to be substantial, no one is quite sure exactly how this will impact global economics.
Increasingly, there are calls from other major economies to keep pace with both other countries, of which China appears to be at the forefront, and private stablecoins - or risk being pushed out of prominence. The Digital Euro Association (DEA) is a group that was started to drive innovation, collaboration, and education around the development of a digital payment system for the Euro Area. We spoke with Jonas Gross, a leader in Central Bank Digital Currencies, stablecoins, and cryptocurrencies research and Co-Founder of the DEA, about why it's so important for the ECB to release a programmable digital currency and how this could look.
“Programmable money” is, without doubt, one of the major buzzwords in the blockchain space in 2020. Even though everyone seems to talk about it, we still lack a clear definition and hence common understanding of this term. In this article, we present a taxonomy of programmable money. In particular, we argue that “programmable money” has to be differentiated from “programmable payments”. To make this distinction as clear as possible, we develop a framework in which we decompose the payments value chain into three pillars: the contract execution system, the digital payment infrastructure, and the monetary unit.
With this letter published on June 15, 2020, we would like to propose a long overdue, high-level roadmap concerning the digital programmable Euro. This initiative is supported by a large and diverse group of experts from across Europe and other countries.
Existing payment systems get more and more disrupted. As a consequence of the global trend of digitizing payments and generating new business models from the use of blockchain-based digital programmable money, several new payment initiatives have been announced recently. Besides “classical” crypto assets, also stablecoins become increasingly important. The announcement of the Facebook-initiated Libra stablecoin is mainly perceived as a game-changer for the financial sector. Today, also central banks discuss the introduction of their own digital currencies, so-called CBDCs. To date, these payment innovations are not sufficiently discussed and analyzed from the perspective of different sectors and industries, as its implications remain unclear since most initiatives have not yet been introduced. At this point, the literature does not sufficiently discuss the implications of these innovations on the financial sector. This paper sheds light on the perception of these payment initiatives by interviewing more than 50 senior experts. In this study, we analyze the impact of digital programmable Euro initiatives, such as the Libra stablecoin, and CBDCs, on banks. We find that both Libra and a Euro CBDC might heavily affect European banks. Experts fear that large-scale financial disintermediation of the financial sector could take place, and digital bank runs could be triggered. Besides these risks, our findings suggest that banks also have the opportunity to develop new business models stemming from these initiatives. Therefore, Libra and a CBDC Euro should not only be seen as threats but also as opportunities.
On July 23, 2020, the FinTech Council of the German Federal Ministry of Finance (German: FinTechRat des Bundesministerium der Finanzen) published a statement about the digital, programmable Euro. With this article, we provide an unofficial translation of the German version of the paper with the goal to make the content also available to non-German speaking readers. More information can be found on the website of the German Federal Ministry of Finance.