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21st century cash: Central banking, technological innovation and digital currencies

Author(s): Fabio Panetta

Date published: Aug 2018

SUERF Policy Note, Issue No 40
by Fabio Panetta, Deputy Governor of the Bank of Italy

JEL-codes: E42, E51, E58, G21, O33.
Keywords: Technological progress, money, central banks, digital currency, payments system, financial stability, monetary policy, anonymity.

Technological progress is allowing for the digitization of many objects of our daily life. Cash may be next in line. The paper analyses the pros and cons of issuing a Central Bank Digital Currency (CBDC), a dematerialized liability of the central bank accessible by anyone in the economy. While recourse to a CBDC as a means of payments may well have benefits, their precise nature is uncertain and they may be too small to justify the introduction of a CBDC. A digital currency could increase financial instability risks, due to its potential effects on the demand for commercial bank deposits; however its impact on the banking system is unlikely to be disruptive. Overall the case for issuing a CBDC remains at best unclear. In addition, a digital currency introduces many open questions, like the role and footprint of central banks in the economy and the extent to which it should preserve anonymity in transactions. Especially the latter implies that the decision to issue a CBDC is hardly a technical one: society as a whole must be involved.

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SUERF Policy Note, Issue No 40SUERF Policy Note, Issue No 40

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