Issuing Central Bank Crypto Too Attractive To Ignore

A postdoctoral researcher hailing from the University of Luxembourg wrote in his study something about the existence of a central bank digital currency. Basically, the idea of issuing the latter is quite attractive to ignore. The research, in particular, was reportedly shared by the Oxford Business Law blog recently.

Existence of a CBDC

The postdoctoral researcher is none other than Hossein Nabilou, who is part of the university’s Faculty of Law, Economics, and Finance. He showcased his findings in a study called “Central Bank Digital Currencies: Preliminary Legal Observations.” Nabilou’s study specifically focused on the potential obstacles that launching a CBDC could bring to the ECB or European Central Bank.

According to the researcher, digital currencies are capable of greatly impacting the banking sector. In fact, since their existence, this has always been the case. He suggests how these cryptos’ functionality, which is akin to money directly issued by a central bank, has caught the attention of banks.

Banks, on the other hand, were pretty much occupied with the idea that digital currencies could affect for them for the worst. In other words, they fear that these digital assets could ruin their monopoly when it comes to controlling the circulation money. More importantly, their existence could impact the stability of any existing financial systems.

Pros and Cons

Thus, according to Nabilou, CBDCs have the ability to be treated as a policy response to the rapidly growing popularity of digital currencies. Despite the never-ending skepticism the society has towards cryptocurrencies – including multiple attempts related to the launch of a state-backed coin – central banks appear to be actively studying the technology behind cryptos. In fact, he believes that some of them have already entertained the idea of launching a CBDC designed to cater to their own agenda.

However, if the ECB decides to launch a crypto, it could possibly lead to banking disintermediation. Nabilou suggests that this could allow customers to obtain access to the balance sheets from the central bank. At the same time, there should be no reason whatsoever for these individuals to hold balances within a certain commercial bank. Why exactly? The research is confident that doing so would likely result in the instability in the overall banking sector.

Furthermore, the aforementioned move would only centralize credit allocation and even undermine the very principle that defines an open market economy. The latter, in particular, is one that should come with free competition. As such, this would clearly violate the constitutional constraints implemented by the EU.