Credit Manager Magazine 6/2021

49 CREDIT MANAGER MAGAZINE czerwiec / june 2021 MACROECONOMICS Benefits and risks of central bank digital currency The concept of a central bank digital currency (CBDC), i.e. publicly available electronic money issued by a central bank, has become a hot topic for economists in recent years. Piotr J. Szpunar Director of the Economic Analysis Department of the National Bank of Poland (NBP) Some central banks and international institu- tions are conducting analysis and publishing reports on such currency, and a few central banks in emerging economies have even de- cided to launch a certain form of CBDC. Nowadays, central banks tend to restrict access to the electronic money that they is- sue only to commercial banks. The funds of commercial banks kept in their accounts at the central banks can be used to settle both their own transactions and those of their cli- ents. In contrast, access to cash, i.e. the pa- per form of central bank money, is available to both banks and – through the banks – to non-banking entities. The introduction of CBDC by central banks would involve the central bank issuing elec- tronic money that could also be used by non-banking entities, i.e. predominantly ho- useholds and businesses. Three possible forms of CBDC are proposed most frequently: 1) an electronic record on accounts in the central bank 2) a so-called token in the form of a dis- tributed ledger, or 3) a record on a payment instrument or device (e.g. on a pre-paid card or a smartphone). At the same time, many specific questions related to the potential operation of a CBDC are being considered. These concern, in the first place, limits on the amount of CBDC holdings and transactions, the universality of access to CBDC, the interest rate on it, the method to settle transactions (directly be- tween the parties to the transaction, through the central bank, or through the commercial banks), as well as their anonymity. The impact of any CBDC introduction would depend, to a large extent, on the specific form that the given CBDC would assume and the details of its implementation. How- ever, CBDC introduction is often seen as an opportunity to enhance the effectiveness of a payment system, which in many coun- tries leaves much to be desired due to long settlement time and high costs related to an underdeveloped technology and a lack of competition. At the same time, CBDC would provide a response to the emergence of pri- vate digital currencies in recent years that may be a source of risk to their users. In some advanced economies, notably in Sweden, an important reason for the poten- tial introduction of a CBDC amid the pro- gressive squeezing out of cash would be to ensure access to central bank money as an alternative to private cashless solutions. On the other hand, in developing countries, the introduction of a CBDC might limit financial exclusion that concerns a significant part of the population. In the debate on the introduction of CBDC one cannot omit discussion about cash. Its sharp decline in use in transactions (or even its disappearance), which is expected by some, could provide an argument in favour of the introduction of CBDC. A decline in the use of cash might restrict access to mon- ey issued by the central bank for a large part of society. Yet, which is often overlooked, despite the ongoing dynamic growth of elec- tronic payments across the world, in most advanced and emerging economies the value of cash in circulation in relation to GDP is not falling. On the contrary, it is increasing (as evidenced, among others, by economists of the Bank for International Settlements). In the euro area, according to the recently pub- lished data for 2019, 73% of transactions (by number) or 46% (by value) were concluded in cash form. In Poland, according to the December 2019 NBP report “Payment System in Poland”, although the share of cash payments in the number of retail payments has fallen mark- edly in the last several years, consumers con- tinue to declare that most of their transac- tions are carried out in cash (57% in 2018; by number of transactions). In countries where the payment system op- erates efficiently, its operating costs are low and it provides a high level of security, di- versity and functionality for the users (like in Poland), and at the same time cash is still “The introduction of CBDC by central banks would involve the central bank issuing electronic money that could also be used by non-banking entities, i.e. predominantly households and businesses.” “A decline in the use of cash might restrict access to money issued by the central bank for a large part of society.”