The Bank for international settlements (BIS) believes that a digital currency issued by the Central Bank (CBDC), can accelerate a mass withdrawal of deposits from the Bank in periods of financial stability.
The Institute, which, according to some, is “Central Bank of Central banks”, argues that those who want to develop and launch a fully digital currency, should “carefully weigh” the consequences of this decision, particularly in regard to monetary policy and overall stability. The BIS also noted that the currency of this kind “can be useful for payments, but to evaluate the full potential requires additional work to be done”. In the beginning of the message, the Bank said:
“The main goal of the CBDC may lead to increased instability of funding deposits of a commercial Bank. Even if they are designed primarily for billing purposes, in times of crisis, the flight in the direction of the Central Bank can happen very quickly and on a large scale, thereby forcing the commercial banks and the Central Bank to find a way to deal with these situations”.
Later, the authors of the report turned to the subject, outlining a hypothetical situation in which banks even more powerful — may encounter problems during a mass withdrawal of deposits because of the ease with which investors can move their funds through digital currency.
“Depending on the context, a shift of deposits during the crisis may be significant. A key element of such system-wide changes is a higher sensitivity of investors to the actions of others. The more other investors are fleeing from weaker banks, the more incentive to run yourself. If CBDC will be available, the incentives for the withdrawal of funds may become more common than today, as the CBDC will be the favorite way of saving, especially if previous deposits were not insured or the insurance contributions were (more) limited. Because of the CBDC with the withdrawal of funds may face not only the weaker banks, but also strong.”
BMR took a somewhat intermediate position in respect of the application of the technology of the distributed registry, expressed in previous reports, the confidence that this technology is promising, but is unlikely to be widely used by banking institutions in the near future. On the contrary, in the past representatives of the BMR has sharply criticized the cryptocurrencies.
Remains to be seen, he warned there similar concerns in any currency issued by the Central Bank. Currently, a number of institutions are considering the idea of using some elements of the cryptocurrency in their projects of digital money.
Recall that last week, Yao Qian, who heads the research the people’s Bank of China, argued that some of the characteristics of cryptocurrencies should be included in the CBDC.