Central banks should issue their own digital currencies to replace a crisis-prone banking system and shut out cryptocurrencies, according to Nouriel Roubini.
In an article for The Guardian, he notes that cash is being used less and less, and has nearly disappeared in countries such as Sweden and China. At the same time, digital payment systems – PayPal, Venmo, and others in the west; Alipay and WeChat in China; M-Pesa in Kenya; Paytm in India – offer attractive alternatives to services once provided by traditional commercial banks.
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“Most of these FinTech innovations are still connected to traditional banks, and none of them rely on cryptocurrencies or blockchain. Likewise, if central bank digital currencies (CBDCs) are ever issued, they will have nothing to do with these over-hyped blockchain technologies,” he says.
“Nonetheless, starry eyed crypto-fanatics have seized on policymakers’ consideration of CBDCs as proof that even central banks need blockchain or crypto to enter the digital-currency game. This is nonsense. If anything, CBDCs would likely replace all private digital payment systems, regardless of whether they are connected to traditional bank accounts or cryptocurrencies.”
If a CBDC were to be issued, it would immediately displace cryptocurrencies, which are not scalable, cheap, secure, or actually decentralised, Robin argues. “Enthusiasts will argue that cryptocurrencies would remain attractive to those who wish to remain anonymous. But, like private bank deposits today, CBDC transactions could also be made anonymous, with access to account-holder information available, when necessary, only to law-enforcement authorities or regulators, as already happens with private banks.”
Cryptocurrencies, he adds, are not actually anonymous, given that individuals and organisations using crypto wallets still leave a digital footprint. And authorities that legitimately want to track criminals and terrorists will soon crack down on attempts to create cryptocurrencies with complete privacy.
“Insofar as CBDCs would crowd out worthless cryptocurrencies, they should be welcomed. Moreover, by transferring payments from private to central banks, a CBDC-based system would be a boon for financial inclusion. Millions of unbanked people would have access to a near-free, efficient payment system through their cell phones,” he claims.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.