ECB Supports Central Bank Digital Currencies

A European Central Bank (ECB) official is throwing his support towards wholesale central bank digital currencies (CBDCs).

In fact, Vitas Vasiliauskas, a member of the Governing Council of the ECB and chairman of the board of the Bank of Lithuania, said the real issue at play is whether CBDCs should be retail, wholesale, or a combination of both. While a retail CBDC would be available for the general public, wholesale would serve a limited circle, primarily banks.

Vasiliauskas  is contemplating both sides. A wholesale CBDC could be used to boost payments and securities settlement efficiency, as well as to reduce counterparty credit and liquidity risks, he said, according to CoinDesk.

“[A value-based wholesale CBDC] would replace or complement reserves at the central bank with a restricted-access digital token,” he said. “A digital token would be a bearer asset, meaning that during the transaction the sender would transfer value to the receiver, without intermediaries. This is something fundamentally different from the current system in which the central bank debits and credits the accounts without transferring actual values.”

Yet a retail CBDC could be either value-based or account-based, with the former resembling cash in digital form and guaranteed by central banks. The latter could be in the form of an account at central banks, available to everyone.

Vasiliauskas pointed out that retail CBDCs also have substitutes available, which doesn’t make sense from a cost-benefit analysis. For example, the Bank of Lithuania already has a payments infrastructure which supports “24/7 instant payments.”

“Such developments limit the potential added-value of the retail CBDC,” noted Vasiliauskas. “Therefore, assessing the balance between risks and benefits from the perspective of generally conservative central banks, the wholesale CBDC seems like a more viable option going forward.”

And while the Bank of Lithuania sees potential in CBDCs, it is “cautious.” “For now, this seems like quite a distant prospect,” said Vasiliauskas.