Javier Calafell, the deputy governor of the Bank of Mexico (Banxico) has recently talked about central bank digital currencies (CBDC). To him, they will not be able to hold a lot of interest for the general public unless they are able to be used in a fully anonymous way.
He talked about this during a speech held by the U. S. Federal Reserve Bank and the OMFIF Foundation. During the speech, he was focused on the potential solutions and problems that can be created with the rise of these currencies.
Calafell outlined some of the advantages that these tokens issued by Central Banks can have. According to him, they can offer security of payments and cost-effectiveness for the user. However, he was also very eager to point out all the issues that can be caused by this kind of currency.
In his opinion, the CBDCs are mostly ineffective because there are already some existing digital payment systems that can have most of their functions, so they are not even really needed in the first place. Since the Central Bank handles most of the payments, their so-called back-up function is not even that useful.
He also affirmed that cash is set to decline significantly in use soon and the issuance of CBDCs will probably not change that. People are just going to use less cash because they have better options today.
The Anonymity Paradox: CBDCs Can’t Be Private, But They Need To
The main problem found by the bank expert was that CBDCs cannot have privacy features but they need it in order to be used.
At one hand, the governments would have trouble if they allowed a digital currency that was fully anonymous. At the other, the general public does not want to use something that does not have enough privacy, as they will not feel protected enough. He affirmed that anything with less than “full anonymity” will fail because it will lack the needed adoption in order to be successful.
He did highlight, however, that CBDCs can still be considered to be very early in their development, so they have some potential with them. He does not believe that our current understanding of the technology is enough in order to create something useful but that the notion should not be completely ignored.
According to his conclusion, this is the time to be open to innovation and to pay attention to the new technologies which are emerging, as they might prove to be useful. However, it is also very important to be cautious when adopting these technologies as they may have some important implications that we are still not fully aware of.
The subject will continue to be discussed. Recently, the International Monetary Fund, an organization which is very interested in the subject, reported that more central banks are bound to launch CBDCs soon. When the first ones do it we’ll finally be able to see what the future holds.