European Central Bank Says Cash Is Not “Fit” In Paperless Society

( )- According to a new document from the European Central Bank, cash is no longer a viable instrument in the digital economy, and a central bank digital currency (CBDC) is the “sole solution” to maintain the current monetary system (ECB).
In a recent article titled “The Economics of Central Bank Digital Currency,” issued by the eurozone’s central bank, the authors evaluated the effects on the financial system and looked at data privacy and digital payments.

The researchers concluded that a CBDC, such as a digital euro, would be the “sole solution” to enable a “smooth continuance” of the current monetary system. The report dismisses the claims that CBDCs will restrict the credit supply and be a disruptive force in financial markets.

According to the ECB, digital money is essential in a digital economy. A CBDC must be installed because “cash is losing its attraction as an efficient form of payment.” A digital update of currency is essential to developing “the two-layer system of public and private money,” even if the research outlines the disadvantages of implementing a uniform digital monetary system, such as the slow speed of settlements, market changes, and adoption.

In the end, cash has “huge economic costs without evident advantages” and is thus “not ‘suited’ for the digital age” by design.
The authors caution that privacy issues may arise with digital currency. Researchers have identified a “privacy paradox” in which people emphasize the value of privacy in surveys but give over personal information for free or in exchange for negligible compensation.

The paper rejects cryptocurrencies and stablecoins, which label them a “threat to monetary sovereignty.” The Federal Reserve published a discussion paper in January looking at the benefits and drawbacks of a potential US CBDC. Congressmen from both parties have asked the Fed to move the CBDC project along quickly. The People’s Bank of China unveiled the digital yuan in 2021 following seven years of continuous research. As fewer Chinese customers use physical money, the e-yuan is a CBDC that aims to replace some of the cash already in use. Some claim Beijing is attempting to undermine the world’s monetary system, although officials dispute this.

Dollars made up approximately 60% of reserves in the first quarter of 2022, according to statistics from the International Monetary Fund (IMF). Less than 3% of the total was in yuan. Experts caution that it is not difficult to imagine the government imposing digital money to facilitate social monitoring programs. The World Bank has issued a warning, stating that despite what supporters claim, it threatens the “financial integrity” of the current banking infrastructure. The Center for European Reform warns that in the end, CBDCs may out to be an expensive investment that yields no meaningful results.