The Central Bank of Spain (BDE) released a nine-page report accepting that cryptocurrencies can bring certain benefits to local financial systems.
The report also reveals that many governments – China, Sweden, England and others – around the world are currently mulling the introduction of central bank digital currencies (CBDC).
However, the study concludes that for now the best decision central banks can make is to avoid financial and monetary risks by not yet introducing crypto into their economies.
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“The most reasonable path of action for central banks to consider is that of vigilantly waiting, analysing all the technological innovations and the application of these into their spheres of responsibility while avoiding possible financial and monetary risks,” the state bank says.
The Spanish central bank explains that if and when cryptocurrencies are more widely accepted and used by the people, governments would have to immediately consider introducing a CBDC or face a series of financial risks, including losing control of monetary policies.
Concerns over crypto
“The emergence of cryptocurrencies has generated a degree of concern among some analysts who believe crypto will gain widespread public acceptance and end up displacing official money and causing central banks to lose control over the transmission of monetary policies into the real economy, which could have serious consequences in the face of the stability of prices,” the bank states.
However, since this is not currently the case, the bank add: “This motive does not yet justify the introduction of a CBDC.”
The BDE says CBDCs have the “same characteristics as fiat or hard currency as well as financial reserves because they would be deposited in banks accessible to families and companies”.
The central bank agrees that digital currencies could bring specific benefits, such as the “fight against exclusion, tax fraud and money laundering, as long as anonymity is stripped from the CBDC”.
Crypto, stability and crisis
The central bank also outlines that “CBDCs (remunerated or not) could affect economic stability because, in case of a financial crisis, the money of a central bank could be perceived as more secure than deposits in commercial banks”.
It goes on to say that “people with huge deposits not covered by public guarantees could find themselves tempted to make massive withdrawals from their banks and into their CBDC accounts, fueling possible banking panics and, therefore, making financial crises worse”.
Lastly, Spain’s Central Bank suggests that the limited amount of Bitcoin and other cryptocurrencies has “caused a progressive change in their valuation from inception as a means of exchange to its current status as an investment product with elevated price volatility”.
The BDE compared investing in Bitcoin to buying gold or diamonds, stating: “These are all assets of limited availability that are not subject to the action of governments or central banks.”