Central Banks Issuing Digital Currency Could Be a Bluff; Here’s How

Going by recent headlines, it appears as though central banks around the world are planning to or in the process of creating their own digital currencies.

The coins, by their disruptive nature, are bound to attract attention from these banks. And with Facebook’s plans to launch the Libra, there are ever-growing challenges to their monetary authority and uncertainty about how money will be used in the coming years.

Central Bank Digital Currency, a Bluff?

Despite all this talk about central banks launching their own digital currencies, it’s an “elaborate bluff,” according to Financial Times. 

Christine Lagarde at the European Central bank (ECB) gave a contradictory position this week when she told the European Parliament that central bank-issued digital currencies (CBDCs) were “an area where we have to rush slowly.”

“There is clearly a demand and there is clearly a technology that would support it, but clearly there are also risks for the international monetary system and financial stability at large,” she added.

It is clear that the idea of the Libra — a digital currency that promises to make payments quicker, cheaper, and easier for Facebook’s almost 2.5 billion users — has been a serious wake-up call for central bankers. They worry about all kinds of risks, including its operational robustness, customer protection, money laundering, terrorism finance, and data privacy.

But the biggest concern is that Libra, and other digital currencies like Bitcoin, have the potential to dilute the main power of central banks: their ability to control the supply of money.

Benoît Cœuré, the ECB director who led the G7 working group on the Libra, has likened Facebook’s digital currency to an “elephant in the sandbox;” French finance minister Bruno Le Maire warned the country could ban the Libra.

Faced with such concerns, central banks are moving cautiously.

Contradictions Apparent

Of note is that ECB insiders say it has no laboratory working on a digital euro and little intention to create one any time soon.

It seems most of these recent comments seem designed push private sector banks into improving inefficient, costly, and time-consuming cross-border payments.

Cœuré recently praised an initiative by about 20 large European banks including BNP Paribas and Deutsche Bank to create a new digital payments system: the Pan European Payment System Initiative (Pepsi). The idea is to enable instant cashless payments through a European rival to ApplePay in the US and Alipay in China.

In the same speech, Cœuré again touched on the possibility of the ECB issuing its own digital currency, saying: “Potential central bank initiatives should not discourage or crowd out private market-led solutions for fast and efficient retail payments in the euro area.”

With the contradictions apparent, this talk of central banks issuing digital currencies could just be a distraction as they are secretly hoping the private sector will come up with solutions that make issuing a CBDC unnecessary altogether. 

What is for certain is that central banks are worried about what the future holds for them.

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