Our current A transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. system is not without faults, state Benoît Coeuré, Executive Board of the European Central Bank (ECB) and Jaqueline Loh, Chair of the Markets Committee of the Bank for International Settlements (BIS) in an opinion piece for the Financial Times. If Bitcoin is commonly said to be a cryptocurrency, a digital means of exchange developed by a set of anonymous authors under the pseudonym of Satoshi Nakamoto, which began operating in 2009 as a community project (Wikipedia type), without the relationship or dependency of any government, state, company or body, and whose value (formed by a complicated system of mathematical algorithms and cryptography) is not supported by any central bank or authority. Bitcoins are essentially accounting entries i... and other cryptocurrencies are proving to be “no better than gambling in a casino”, they have brought up fundamental weaknesses in our current system related to the remittance market and cross-border retail payments.
The global Money sent home from emigrants working abroad. market is a major source of income for many developing countries and therefore a crucial variable for economic development. Why are remittances so important? Because their contribution to the world economy is enormous: remittance volumes are three times higher than overall aid for development, amounting to $429 billion in 2016 for the former, according to the World Bank, and 142.6 billion in 2016 (OECD) for the latter.
Today, both remittances and international retail transactions engender high costs, slowed processing times and are often carried out by third parties that practice high fees (i.e. Western Union). This, conclude Coeuré and Loh, is the system’s Achilles heel. “Tokenized forms of digital A liability of a central bank, including banknotes in circulation and banks’ deposits with the central bank. could potentially help streamline many of the cumbersome clearing and The discharge of an obligation in accordance with the terms of the underlying contract. In e-transfers the settlement may take days, whereas cash settlements are instantaneous and irreversible. processes that are currently needed to complete securities and foreign The Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. trades”. It will not replace Money in physical form such as banknotes and coins. but it could improve the current system by offering an almost instantaneous, transparent and direct access to payments, 24/7.
Indeed, until cash is as widely used as it is today (usage continues to grow in many parts of the globe), the development of central bank digital currencies (CBDC) will remain a secondary preoccupation for governments. The issue will, however, need to be addressed, add Coeuré and Loh. Because cash is the only The money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. that is also a public good, central banks must continue to monitor developments in digital payments.
If cash were to disappear, the public would suddenly become “wholly dependent on commercial From the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati..., and trust in the currency, a key public good, would be reliant on the creditworthiness of commercial entities and on specific payment technologies”. This, as Governor of the Swedish central bank Stefen Ingves nicely stated in a recent article, is a risk that must be taken into consideration because, when things go sour, will we be able to truly rely on private companies to maintain the cashflow?