Fabio Panetta, deputy governor of the Bank of Italy, gave a keynote address focused on central bank digital currencies (CBDCs) at the SUERF/BAFFI CAREFIN Centre Conference in Milan Thursday, June 7.
Unlike cryptocurrencies – “a liability belonging to nobody” – the deputy governor stressed from the outset that a CBDC would be a liability of the central bank, backed by its assets.
First addressing CBDCs as a potential means of payment, Panetta considered their advantages as “at best unclear” when compared with the existing digital payment mechanisms offered by the private sector.
Where Panetta saw a key potential justification for CBDC issuance was to reduce costs in the production, transportation, and disposal of cash. He cited estimations that these costs amount to about half of a percentage point of GDP in the EU annually, around €76 bln – a figure equal to almost half of the annual EU budget.
Panetta added that if combined with Distributed Ledger Technology (DLT), the potential cost efficiency gains of a CBDC could be even more significant.
Considering CBDCs’ potential use as a store of value, Panetta highlighted that in addition to virtually zero storage costs, a CBDC could function as an asset with “unique characteristics,” free of credit and liquidity risks. As such it could become preferred to other means of storing wealth, including bank deposits.
Panetta however nuanced concerns that a switch from bank deposits to a CBDC would necessarily threaten the financial system as a whole, even though it might squeeze the net interest margin (NIM) profitability that underpins banks’ lending models…