In a speech published by the Bank of International Settlements on Monday, 27 May, a European Central Bank official, Vitas Vasiliauskas, discussed the potential benefits of Central Bank Digital Currency while also mentioning the cautions that otherwise need to be taken.
Mr. Vitas Vasiliauskas is the Chairman of the Board of the Bank of Lithuania and the speech mentioned above was made at the Reinventing Bretton Woods Committee conference about “Managing the Soft Landing of the Global Economy.” The conference was held in Washington DC on 12 April 2019.
Mr. Vasiliauskas began by explaining what CBDCs actually are. He defined it as a ‘novel type of central bank money’ which could serve as a ‘medium of exchange, a means of payment, a store of value’ or as any other form of central bank money currently being used. He further added that CBDC cannot serve as a private cryptocurrency asset or as a regular reserve account.
According to Mr. Vasiliauskas, the three possibilities in the accessibility of the CBDCs are that they can either be retail or wholesale currencies or a combination of both. He said that in the case they are dealt as retail, they would be available to the general masses while when they are traded as wholesale, their availability would be limited to financial institutions.
The many potential benefits of the CBDCs, listed by Mr. Vasiliauskas include better payment efficiency, more accessible security settlements, and bringing down the risks involving liquidity and counterparty credit. He also maintained that interest-bearing CBDC could ‘improve the transmission of monetary policies’ and ‘strengthen the pass-through of the policy rates to deposit and lending rates.’
It could, he added, also bring down the lower bound constraint; not to mention its positive effect on financial stability and provision of continued access to the central bank money to the people. In an entirely contrasting view, Agustin Carstens, General Manager of the Bank of International Settlements, stated earlier this year that CBDC could prove to be a disaster for financial stability.