The SUERF/BAFFI CAREFIN Centre Conference in Milan Thursday, June 7 was marked by the deputy governor of the Bank of Italy – Fabio Panetta’s keynote address focused on central bank digital currencies (CBDCs).
Italy would be a liability of the central bank, backed by its assets said the Governor comparing it with the cryptocurrencies which he said is “a liability belonging to nobody.”
First addressing CBDCs as a possible means of payment, Panetta measured their advantages as “at best unclear” when weighed against the already established digital payment mechanisms offered by the private sector.
Considering its potential use as a store of value, it could be favored when compared to other means of storing wealth, including bank deposits. He highlighted that in addition to almost zero storage costs, it could function as an asset with “unique characteristics,” free of credit and liquidity risks.
Panetta also pointed out that a key prospective justification for its issuance was to trim down costs in the production, transportation, and disposal of cash. He added that if joint with Distributed Ledger Technology (DLT), the possible cost-efficiency gains could be even more momentous.
Panetta, however, articulated concerns that a huge change like this (from bank deposits to a Italy ) would inevitably threaten the financial system as a whole.
Which is why, he laid emphasis on instead that it could innovate existing operational frameworks, and drive the market towards a “narrow banking model”.
The Bank of England issued two staff working papers dedicated to the subject of CBDCs last month. The first laid out a range of risk analyses, concluding that there was no reason to deem that introducing it would have undesirable effects on private credit or on total liquidity provision to the economy.
The second paper, however, had the same conclusion as Panetta- that the implementation could create a competitive threat to commercial banks. A March report by the Bank of International Settlements (BIS) also suggested that “in times of financial stress, domestic investors are likely to consider it attractive relative to bank deposits, with many possible side effects… for financial stability.”