Cornell University professor Eswar Prasad is the latest prominent figure to come out in support of digital currencies, suggesting that central banks should issue their own currencies in order to remain in the money game, Bloomberg reported on November 19, 2018.
Cryptocurrencies Could Allow Central Banks to Stay in Money Game
While cryptocurrencies have long been marketed as an alternative to the centralization of banks, it seems that large financial institutions have started realizing the potential digital money brings.
According to Prasad, central banks should start looking into issuing digital currencies as it would allow them to stay relevant in a time of disappearing cash. During an interview with Bloomberg Television’s Alix Steel on November 19, Prasad, a former IMF China division chief, said that digital currencies will enable banks to remain in the game.
“If you look at certain economies like Sweden where the use of cash is very fast disappearing, central banks may have very little role to play both in terms of wholesale as well as retail payment systems, so this would keep central banks in the business of creating money,” he explained.
Prasad’s attitude towards digital currencies seems to have resonated around the world, with Bloomberg reporting that policymakers from Uruguay to Canada are already researching the idea. International Monetary Fund Managing Director Christine Lagarde has also urged central banks to look into issuing digital currencies.
Centralizing Digital Currencies Doesn’t Come Without Risks
Despite the overwhelming support Lagarde’s ideas have gotten, Prasad is still skeptical. He said that the world’s biggest advanced economy central banks, the Federal Reserve, European Central Bank, and Bank of Japan, were all taking a “step-back approach” to digital currencies.
According to Prasad, this is due to the increasing privacy concerns that centralizing brings, as well as the displacement of commercial banks’ role in retail payments, hacking and the general sense of uncertainty linked to implementation.
He also questioned the technical infrastructure necessary to carry out such a project and said that not even China might have the infrastructure and government institutions necessary to support a central bank digital currency (CBDC).
The setbacks banks would face when launching such a project shouldn’t discourage them from pursuing it, according to Dr. Nouriel Roubini. Roubini, who is a professor at New York’s University’s Stern School of Business and chairman of Roubini Macro Associates, an economic consultancy firm, rose to fame as a stern critic of bitcoin and other cryptocurrencies.
In an article written for Project Syndicate, Roubini said that the conversation about the pros and cons of CBDCs is “past due,” as cash as being used less and less and is being overtaken by digital payment systems such as PayPal, Venmo, and WeChat.