Digital Euro Association Blog

Event Summary: Is Digital Money an Effective Defense Mechanism in Times of Crisis?

In this panel on “Digital Money in Times of Crisis”, the panelists discussed questions around the general role of money, CBDCs as a defense mechanism and the role of states to issue digital forms of money in times of crisis. For those who missed the panel, you can rewatch itl on YouTube, listen to it as a podcast or read through the following comprehensive summary of the event.

During this panel, Sarah Palurovic welcomed the following panelists:

Kateryna Zhabska is the head of innovation projects & project manager for the national CBDC (i.e., e-hryvnia) for the National Bank of Ukraine.

Caroline (Berger) Hill is the director of global policy and regulatory strategy at Circle. She is focusing on money laundering, terrorist financing and previsouly used to be involved with sanctions policy at the US Treasury department. 

Glenn Kim is the managing director of strategic business development at Fluency with more than 30 years experience as a government and central bank financial advisor, investment banker and entrepreneur in tech and financial services.

Dr. Cyrus de la Rubia is the chief economist at Hamburg Commercial Bank since 2005. One of his research projects focuses on digital money and its implication for the economy and society.

Keynote on the Ukrainian case for a CBDC

Kateryna Zhabska’s keynote on the Ukrainian case for a CBDC (i.e., e-hryvnia) outlined the previously completed work, the current status and the future outlook of the Ukrainian CBDC. Since 2016 the National Bank of Ukraine has been doing research on CBDCs on a permanent basis. Two years later in 2018 the National Bank started a CBDC pilot project that covered different aspects (e.g., technology possibilities, international experience, macroeconomic effects, business models and legal aspects). The goal of their first pilot was to test the potential for scalability and financial inclusion for the CBDC. As the result brought more questions than answers though, Kateryna and her team realized they had to continue the research and needed to engage the Ukrainian private market more than previously expected. As a result, they performed an international conference event week with participants that are key players of their financial and fintech market to make them aware of the National Bank’s CBDC project. One year later in 2021 they ran a survey of market experts with the goal to determine consumer motivation and potential demand for the e-hryvnia. The result helped them to define further steps and what the purpose of a CBDC could be for Ukraine in association with the Ukrainian parliament.

The subsequent steps of the Ukrainian CBDC project are directed towards the following three proposed use cases:

  1. Avoiding criminal impact in the Ukrainian retail cashless payment area,
  2. Adopting the e-hryvnia for the circulation of virtual assets (e.g. for exchanges) and 
  3. Using the Ukrainian CBDC for cross-border payments.


After her presentation, the audience directed the following questions to Kateryna:

1)  What are social payments?
Kateryna explained that the purpose of social payments which will be available with a Ukrainian CBDC on the one hand will be adopted to automate government-to-person (G2P) disbursement payments like taxes to the Ukrainian retail market. On the other hand, with the help of programmable money, there are also other benefits to the Ukrainian population as compared to the traditional payment system. As an example, she explained that payments that are transferred from the government to a parent for a newborn child should only be used to buy goods that a newborn really needs.

2) How has the war influenced the design features that the National Bank of Ukraine is considering for the e-hryvnia?
Kateryna began to explain that the deadlines for the design features had already passed before the war. However, as the war began, the National Bank of Ukraine realized that they had to reconsider certain aspects. As a result, the National Bank of Ukraine now considers offline payments as a design feature as influenced by the war.

3)  Will it be possible to pay with the e-hryvnia in an anonymous manner?
Kateryna admitted that this is one of the most difficult questions that the National Bank of Ukraine is facing. She added that the anonymity that cryptocurrencies usually give, should be well balanced with all financial monitoring aspects, as finance for terrorism is a current problem that the Ukraine is faced with. However, as Kateryna and her team are currently in the conceptualization phase, it is uncertain to assess how the current war situation will influence this consideration.

In the following panel discussion, all panelists share their views on the role of money in times of crisis, benefits and drawbacks of state-issued digital money amongst other questions: 

1) “Which role does money have in times of crisis”?
For the panelists, physical cash is an important value as it can be used without any restrictions (e.g., if there is no cellular connectivity or WiFi connection). The traditional role of money is that of a medium of exchange, store of value and unit of account. These principles should also apply in times of crisis.

However, the consumer experience is that money often loses its value due to high levels of inflation which bears the risk of leading to a financial crisis and recession as a result. If this is the case, the trust in fiat money weakens in the general public and triggers citizens to look into alternative valuable items like foreign currencies or cryptocurrencies. 

2) “Which benefits can privately issued digital money have for consumers in times of crisis?”
The panelists deem easy accessibility and the contribution of privately issued digital money to currency stability as one of the major benefits of digital money for consumers in times of crisis. New forms of digital money widen the scope of programmability for money. For example, the government could issue a CBDC that cannot expire per design rather than issuing economic stimulus vouchers to the citizens that contain an expiration date.

3) “What are the benefits and downsides you see with CBDCs as compared to publicly issued money in times of crisis”?
As a CBDC is a direct claim on central bank money, CBDCs are more resilient in terms of providing increased trust and stability for the financial system and consumer. One of the downsides addressed is the potential to disrupt the banking system but in times of crisis, it is important to have sustainable functions in the banking system, as it is the key pillar for the monetary system and a country’s economy. In addition, the panelists share their experience that cash is diminishing in use in times of crisis. If a CBDC is account-based, it would provide easier access for citizens rather than having to rely on existing ATMs in times of crisis.

4)  “Should states provide a CBDC as a defense mechanism in times of crisis?”
From the perspective of the panelists, it should be considered that the majority of countries are still in the early stages of CBDC research (i.e., investigation phase). They refer to the aforementioned benefits but emphasize on the importance of ensuring cyber security as top priority. In addition, there is no one size fits all answer to this question since every country has differing financial infrastructures and faces unique challenges. The panelists point out that more multifactorial considerations need to be explored to answer this question.

5) “Which type of money do you reckon will be the most crisis resistant in the next 10 years?”
According to the participants, it will be a plethora of existing and new forms of money that could address different challenges in different times, serve different purposes and target different groups within a population. However, they deem that it is not possible to make a general statement about what the most stable value (e.g. coin, currency) could be in times of crisis. This is due to the fact that each considered country must be looked at individually and that stability is built on trust which gets reinforced day by day with usage.

Following the panel discussion, the audience directed their questions about the tokenization of bank deposits and the risk of bank disintermediation at the panelists:

1) To Dr. Cyrus de la Rubia: “What do you think about tokenizing bank deposits themselves rather than issuing stable coins on bank deposits?”
 From Cyrus' point of view, tokenizing bank deposits could be a way to accelerate the access to blockchain-based money, given that the central banks are moving relatively slowly. According to him, there is a demand in the industrial sector to use programmable money. It is important that the banking industry agrees on a consistent standard that makes the token interoperable.

2) “Can crisis accentuate the risk of disintermediation for banks if people are moving towards crypto assets and private types of issued money? Do you perceive that as a risk to monetary monopolies of a country?”
From Caroline Hill’s point of view, a fiat-backed stablecoin would still allow a country to conduct monetary policy in times of crisis and beyond.

Dr. Cyrus de la Rubia added that in emerging economies, all sorts of stablecoins or cryptocurrencies are a risk for the stability of a country. Every time there is capital flight out of a local currency, it builds exchange rate risk that usually turns to an increased inflation and usually leads to destabilizing a country’s financial stability. As other, already existing currencies (e.g., USD, EUR, GBP), have been around for a long time, he is not sure if this risk would change or whether it would be the same risk that prevails with traditional currencies. 


About the author

Luca Rose joined the DEA as an associate in October 2021. He is curious about the development of cryptocurrencies in general and the adoption in sectors such as finance, industry and logistics.

Feel free to join him on LinkedIn.

This article was prepared by the author. The views expressed in this article are the author’s own and do not necessarily reflect the views of the Digital Euro Association.

No Comments Yet

Let us know what you think