The Bank of Spain presents a document where it reveals possible arguments that could lead governments to debate the creation of their own CBDC currency.
Society's growing demand for digital payments is leading many central banks around the world to seriously consider creating and implementing their own CBDC digital currency (Central Bank Digital Currency), in order to maintain its sovereignty and economic stability. The Bank of Spain is not exempt from this demand, having recently issued a report entitled “An introduction to the current debate on Central Bank Digital Currency (CBDC)”, where he explains the possible motivations and needs that could lead to the issuance of a digital currency, despite the fact that for several years he has resisted the creation of one.
The Bank of Spain believes that the creation of a CBDC requires a clear definition that allows the state and other entities to operate correctly with it, since there is often a tendency to confuse it between being a digital asset or a value exchange mechanism due to its dual nature. Likewise, the bank argues that beyond the existence of stablecoins private or the technicality that a CBDC can bring to current banking policy, it is necessary to define a real reason or why that adequately justifies the creation and implementation of this type of currency.
In 2018, the Bank of Spain argued that the creation of a digital currency would be key to the development of the institution's monetary policy, but that it was cautious about implementing one due to the significant risks and uncertainty that the creation of a CBDC brings with it. Let's now see if this entity's perception regarding digital currencies is currently changing.
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Central banks' need for a CBDC increases
It is no secret that central banks and government institutions have never agreed with the use of cryptocurrencies as Bitcoin, and even fewer have become fans of these. Likewise, the arrival of a new wave of cryptoassets, called stablecoins or stable coins, caused banks and governments to focus their interest on the creation of their own digital currency, which would serve as a barrier to keep at bay the threat of global and private projects, such as Pound, could affect the sovereignty and economic stability of their nations.
Since 2013, banks have been studying the possibility of creating their own digital currencies through the use and adoption of technology. blockchain, accentuating this interest since private companies began to announce their cryptographic projects. Specifically, most governments consider Facebook's Libra project a major threat to the proper functioning of payment systems, due to the poor security policies that the company has, and which it has demonstrated countless times in the past with the Mismanagement and sale of users' personal data of the network.
Although this threat in itself is not considered by the Bank of Spain as sufficient to justify the creation of its own CBDC, it is part of the possible motivations that may lead it to implement a new digital currency.
Other justifications for creating a CBDC
Beyond competing with a stablecoin, the Central Bank of Spain argues that the study of potential cases and initiatives such as those being developed around a group of central banks around the world, is a great motivation to carry out the development of projects that involve the creation of a digital currency with a certain degree of “urgency”.
In this sense, the Bank of Spain identifies 3 possible justifications that lead to implementing a CBDC of a national and even universal nature. Firstly, the use of cash In societies such as Sweden and Norway, which have reached the point where several businesses no longer accept cash as a means of payment, the creation of a CBDC can therefore be considered as a safe alternative to continue providing the population with access to a publicly provided and risk-free means of exchanging value and payment.
Likewise, the need to combat the Problems of financial inclusion and de-banking The current global challenges experienced in various societies may lead to the implementation of a CBDC. In developing countries, access to traditional financial systems is quite difficult for a large part of society, so they depend crucially on the availability of cash, which is often also scarce or expensive. Therefore, in this scenario, the creation of a CBDC can lead to the banking and financial inclusion of that large part of society that deserves it, and contribute significantly to the continued development of nations.
On the other hand, the Bank of Spain also considers that the implementation of a CBDC will improve the processes of Identification of customers and users that move within economic systems, something that they definitely cannot achieve with the use of cash or fiat money. Likewise, by using a digital currency, the current financial system can overcome the current problems that arise within national retail and wholesale payment systems and in cross-border payment systems.
Bank of Spain's risk analysis of a CBDC
Just as the Bank of Spain points out aspects of global interest that justify the creation and implementation of a digital currency, it is also carrying out an in-depth analysis of the possible consequences and risks that the creation of a new currency may entail.
For example, the displacement of bank deposits or the flight of deposits from the banking system at a given time are some of the concerns that are being evaluated and discussed. Likewise, the costs of creating and maintaining the technological infrastructure necessary for the implementation of a CBDC are also among the concerns raised.
In short, although the Bank of Spain has not openly stated its position on the creation of a CBDC for the digital euro, it is presenting the bases for a possible debate that would justify the implementation of one in the not-too-distant future.
Finally, it is the comments and actions being taken by the European Central Bank that suggest to us the probability of a digital euro being launched through a CBDC, which would also work in the payment system. EUROchain based on distributed ledger technology (DLT).
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