Agustin Carstens Says CBDC like ‘Patient for Major Surgery’

Wilfred Michael 

Wilfred Michael

News reporter

25 March 2019,
Agustin Carstens Says CBDC like ‘Patient for Major Surgery’

At this moment, several countries around the world have different opinions regarding whether or not it is right to issue a central bank-backed digital currency (CBDC).

A good example is a fact that the Marshall Islands have adopted CBDCs, the Bank of Korea warned strongly against it earlier this year, while the Bank of Israel said it would not issue one anytime soon.

The differing opinions, however, has not stopped Agustin Carstens, the general manager of the Bank of International Settlements (BIS) to lend his voice against the issuance of such digital version of currencies.

While speaking at a Friday gathering at the Central Bank of Ireland, the banking chief notably said that Central Banks dealing with CBDCs could be the same as ‘opening up a patient for major surgery.’  "We need to understand the full consequences of what we're doing," he said.

To explain further, Carstens noted that under a monetary system where a country’s central bank issues a digital currency, it would result in a “one-tier” system where citizens could deposit money directly in the central bank and use debit cards released from the same source.

According to him, such a development will reduce the amount of money left with the commercial banks and potentially shift the lending business from the auspices of the commercial banks to the central banks.

He then cited a situation “in the socialist economies before the fall of the Berlin Wall, when the central bank was also the commercial bank” and adds that the current system cannot take such an experiment as something that will serve customers better than what is obtainable at present.

Additionally, he pointed out that if citizens had the choice to convert their fiat to CBDC at a time of financial distress when money moves away from the bank, then it would create “a premium...where one euro of deposits in the commercial bank buys less than one euro’s worth of central bank digital currency.”

Conclusively, Carstens suggested that central banks still desist from issuing a CBDC since there are no clear demands on the part of the society and also because “experiments have not shown that new technologies would work any better than existing ones.” reported earlier this month that the Eastern Carribean Central Bank (ECCB) is set to release its CBDC, despite the warning from the BIS.


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