Ladies and gentlemen,
I am delighted to have the opportunity to talk to you about one of the most exciting topics facing central banks today:
The future of money. Do we need other forms of money beside the ones we already have? And do we need other forms of central bank money? Should banks’ deposits with the central bank be tokenised? Should banknotes become digital?
There are many questions surrounding “central bank digital currencies” (CBDC). And we still have to find the right answers. But one thing is certain: central banks around the world have undertaken tremendous efforts to assess the potential and investigate the opportunities of CBDC.
Just recently, the Bank for International Settlement (BIS) published its third survey amongst central banks worldwide. The survey shows a shift from mainly analytical work towards technical experimentation. More than 60% of central banks are engaged in practical experimental work.
It is clear, then, that even more headway has been made in exploring central bank digital currencies over the past year. On the one hand, the BIS predicts that central banks representing a fifth of the world’s population will issue a general purpose CBDC in the next three years. On the other, a widespread roll out of CBDCs seems some way off. And there are good reasons for this. Because CBDC is a game changer – with potential benefits, but also with a number of challenges.
Central bank digital currencies promise to combine the improved efficiency of their digital form with the safety provided by a central bank in a single means of payment.
However, central bank digital currency would be a third form of central bank money, alongside cash and bank reserves. Introducing a new form of central bank money such as this could have profound impact on the financial system, especially if it is not only available to banks, but instead, like cash today, to the general public. If not properly thought through, such an intervention may lead to unintended consequences.
Today, I would like to outline to you the areas that I believe we need to tackle in order to create a safe, efficient and future-proof currency. But let me start with three trends we are currently observing: digitalisation, declining cash usage and the emergence of new forms of money.
2 Trends in payments
Trend 1: Digitalisation
Our economy is growing more digital by the day. Business processes are becoming increasingly automated and interdependent. Complex value chains arise. The “Internet of Things” enables machine-to-machine communication. E-commerce and online services of all kinds are about to experience an enormous uptake due to the pandemic. The pace of digitalisation has probably never been faster than today. These developments are increasingly calling for a safe and efficient settlement asset which can be seamlessly integrated into almost any kind of business process.
Trend 2: Declining use of cash
Parallel to this, we can see that the use of cash is waning, even in Germany. The current pandemic has boosted not only the use of credit and debit cards, but contactless payments, in particular.
In a recently conducted survey on payment behaviour in Germany during the coronavirus pandemic, we found out that the share of cash transactions has fallen from 74% to 60% over the last three years. Admittedly, it remains to be seen whether the current behaviour also persists in the post-coronavirus period. But what we are currently seeing is quite a considerable change for a country which is strongly accustomed to paying in cash.
Trend 3: Emerging means of payments other than €
Another trend is the emergence of new forms of digital means of payments. These can be central bank digital currencies issued by foreign central banks as well as privately issued means of payment such as stablecoins. At the moment, these alternative means of payment are still in the development or testing phase. However, given the speed at which technology is developing, their widespread adoption might be far less off than we think. Should these forms of money become widely used as a medium of exchange or store of value in the euro area, significant implications could arise: for the role of the euro or the payment industry, and consequently also for financial stability.
3 Central banks need to be prepared
The three trends I have just outlined highlight that, if the payments ecosystem is going to expand, central banks…