China and the Bahamas are already experimenting with their central bank digital currencies, as these are digital copies of their national fiat currencies.

While the European Central Bank is polling public opinion on the digital euro.

Central banks in most countries are actively researching the uses of central bank digital currencies.

But maybe they should stop!

Thus, two researchers stated in a research paper released today that the entire project to create alternatives to digital cash is vulnerable to failure because it lacks a clear justification and need.

These two researchers are Peter Bofinger and Thomas Haas, who published the analysis of European policy in the Department of Economics at the University of Würzburg in Germany.

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The researchers argue that central banks have focused heavily on central bank digital currencies as a medium of exchange.

But they neglect what private banks do in offering benefits such as deposit insurance and a variety of products and services.

He also tells the researchers that the central bank digital currency can serve as a means of storage rather than exchange.

They presented their arguments in this context, which came as follows:

Definition of CBDCs:

Peter Bofinger and Thomas Haas defined the CBDC by saying:

A central bank digital currency can be considered as a deposit with a central bank that is used within the current real-time gross settlement payment systems.

It can also be understood that the central bank digital currency is an independent payment system that works in parallel with the existing system using deposits held with the central bank.

The authors find that it would be difficult for central banks to launch a central bank digital currency without intervening in the market.

Bofinger and Haas noted in this regard:

They need to show that the goals they pursue with central bank digital currencies are not currently being satisfactorily met by private providers.

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Even if public services such as financial stability or the stability of the payment system are not optimally met, it is not clear how CBDCs will be the appropriate solution.

In addition, the researchers wonder, why would a citizen want to switch from a private bank or payment system to a nationally managed bank when he already has insurance on his deposits?

Certainly not because a central bank can offer more products than any private bank that competes for customer service.

In the view of researchers, perhaps the best type of central bank digital currency is the kind that no central bank is talking about for fear of intermediation.

This would be a central bank digital currency not intended to facilitate payments but to store value.

And they wrote:

The demand for a central bank digital currency with stored value will come from companies and large investors with bank deposits of more than €100,000, which will be bailed out in the event of a bank restructuring.

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From the user’s point of view, this demand will depend on the interest rate of such deposits.

Central banks can auction deposits of stored value, which would give them complete control over their value.

In conclusion, the researchers touched on the aspect that digital central bank currencies are very small in scope in the international economy.

The researchers concluded by warning the central banks that:

If central banks stick to their current approach, the risk is high that CBDCs will end in fiasco.

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