Deutsche Bank believes that central bank digital currencies (CBDCs) could radically transform the world we live in and the way we view money, even more than the arrival of cryptocurrencies.
For some time now, the world economy has been strongly influenced by technological developments and innovations of the moment, such as the case of CBDC. The Deutsche Bank, one of the world's largest banking services corporations, based in Germany, published a recent report where it reveals the evolution of money from its creation and different forms, to the well-known CBDC. Digital currencies issued by central banks (Central Bank Digital Currency – CBDC) are the latest evolution of money, which has varied from touchable objects, such as gold, coins and banknotes, to more novel systems, such as bank cards and payment applications on smartphones. Deutsche Bank also says that with the arrival of cryptocurrencies, and digital currencies, money is progressively becoming a digital and "contactless" system.
The arrival of Bitcoin, and its underlying technology Blockchain In 2009, it opened the doors to the construction of a new financial model and new forms of money. Bitcoin and cryptocurrencies are undoubtedly an efficient alternative to the traditional financial system, but CBDCs present greater opportunities than their predecessors, although also with great risks.
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Scope of CBDCs
Deutsche Bank's aim with its report is to examine how central bank digital currencies (CBDC) could become great allies or adversaries for governments, central banks, banking and financial institutions, and consumers themselves.
The corporation fears that the accelerated push that the current pandemic is giving to the development of these currencies will unleash a pronounced battle between the world's powers, as is actually happening. Digital currencies (CBDC) have the potential to "significantly change the world we live in," says Deutsche Bank, and major powers such as China, the United States and Japan know this.
Money of the 21st century
Since 2014, China is developing its digital currency project, DCEP, digital yuan or cryptoyuan, with which it hopes to dominate international trade and challenge the hegemony of the US dollar in global markets. Japan, for its part, welcomed this idea since July of this year, when the Central Bank of Japan announced The United States, on the other hand, has not confirmed the creation of a digital dollar, although the Federal Reserve Bank (FED) has officially announced its interest in developing a CBDC for its national currency, the yen. said which is developing research on this subject, together with the Massachusetts Institute of Technology (MIT), for the creation and study of a “hypothetical” digital dollar.
Likewise, several European countries are not far behind. The European Central Bank (ECB) will soon begin developing pilot tests on the digital euro or cryptoeuro en Spain, while such tests are already underway in countries such as Italy and France. The digital euro is also a digital currency (CBDC) that will be issued by the ECB and will have influence throughout the Eurozone, which covers all member countries of the European Union. With the digital euro, Europe aims to complement the use of cash and significantly boost automation, traceability and interaction between different banking and financial institutions.
The general intentions of all these countries with their CBDC initiatives are to digitize their national currencies and transform them into the new money of the 21st century. In this way, they remain at the forefront of technological development and digital transformation, while protecting and guaranteeing the stability and sovereignty of their economies.
An imminent change
In its report, Deutsche Bank states that the implementation of a digital currency (CBDC) does not only mean a change in the user or consumer payment system, but implies a total change for monetary policy and the traditional financial system. In the opinion of the entity, a CBDC can improve communication between a central bank and its commercial banks, reducing waiting times and eliminating the role of intermediaries, something that also represents a great change for commercial banks themselves.
For its part, Rashid Hoosenally, points out that the introduction of digital currencies (CBDC) in the economies of different countries will mean a change not only in the currency, but in the infrastructures and payment technologies developed. Hoosenally places special emphasis on the dominance of the dollar and the dominance of the United States' infrastructure and technology within payment systems, domains that will be affected by the introduction of CBDC digital currencies.
“I think in the CBDC story, there is potentially an evolution towards a more distributed version of that power, something that looks more like a global consortium rather than being too focused on one country or economic bloc.”
Hoosenally’s vision shows that the creation of digital currencies will lead to a drastic change in the way a currency can be taken as a global reserve currency and be dominant over other economies. The expert indicates that if CBDCs bring about greater harmonization of regulation and technological standards, then they will instantly bring enormous financial and social benefits to make the financial system much more efficient and secure.
Boost to the economy
Deutsche Bank also says that the potential for CBDCs to lower interest rates will create a non-deposit effect for investors and citizens in general, who will have the incentive to spend and invest their money instead of saving it in a bank account.
“With deeply negative interest rates in their bank accounts, and no ability to hold cash for future purchases, investors may find it much more desirable to spend the money now.”
The bank also notes that the creation of negative interest rates will also encourage consumers and businesses to borrow money to spend and invest at the moment.
Consumer Benefits
Faster and cheaper transactions, user protection against risks of defaulting on an agreement, privacy and increased security are some of the benefits that come with the implementation of digital currencies. CBDCs can enable guaranteed, fast and secure payments, while serving as a means of exchange of value, a measure of value and a store of value, although Deutsche Bank points out that this last quality can conflict with the objectives of a central bank's monetary policy.
Similarly, CBDCs ensure universal access to all citizens, promoting financial inclusion and reducing levels of unbanking in vulnerable areas. In addition, the possibility of carrying out cross-border transactions without the large costs that traditional mechanisms entail is another of the great advantages offered by CBDCs.
“For individuals, CBDCs must perform the functions of cash, but with a trade-off between privacy and convenience.”
Digital currencies also bring with them other favorable implications, such as ensuring greater transparency in financial processes and improving business governance. These are true examples of how CBDCs can introduce transformative change and a real difference in the way banks and financial institutions operate.
In short, Deutsche Bank plans to closely monitor the development of these digital currencies and thoroughly assess the momentous changes they can bring about within current financial systems and the global economy.
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