Central bank digital currencies (CBDCs) could become a store of value, a new paper claims – a move that could help them avoid becoming “a gigantic flop.”
These were the findings of two economics experts at the University of Wuerzburg, in Germany, who published their findings on the VoxEU portal, a media outlet run by the EU’s Center for Economic Policy Research.
The duo – Peter Bofinger, a professor of Monetary Policy and International Economics, and Thomas Haas, a research associate and the Chair for Monetary Policy and International Economics at the university – wrote that viewing CBDCs as digital cash substitutes would likely do little to help central banks’ cause with their digitization drives.
Instead, they spoke of the idea of fostering “store of value CBDCs” that could help provide collateral “for large payment service providers.”
The authors pointed out that in China, e-pay heavyweights like Alipay are “required to hold deposits with the central bank,” adding that the architects of Facebook’s Diem (formerly Libra) project have urged CBDCs to “be directly integrated with” Diem, which would “remove the need” for Diem’s networks to “manage the associated reserves.”
Indeed, doing so would have “huge potential” benefits in retail payment systems organized by central bankers, the authors added.
They claimed that if CBDCs were “designed solely as a store of value,” they would “only be used for payments to and from the commercial bank account of its holder,” explaining,
“Successful networks such as PayPal show that such systems are not tied to a system-specific currency or system-specific payment objects. Thus, if central banks stick to their current approach, the risk is high that CBDCs will become a gigantic flop. This would be anything but beneficial for the reputation of central banks.”
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