The race for the first major global economy to issue a digital central bank currency (CBDC) has just intensified – with the European Central Bank (ECB) seems to admit that when it comes to adopting CBDC, it may be worth being the first.
These were the results of one thing new paper written by Massimo Minesso Ferrari, an economist in the International Policy Analysis Department of the ECB, and two other policy makers at the ECB, CBDC,
In the paper, Ferrari et al.
“Introducing a CBDC sooner rather than later could bring the issuer a significant first mover advantage.”
They added that countries without CBDCs would initially have a distinct disadvantage compared to other countries with a token issued by a bank, with the former potentially losing control of their own monetary policy by reacting strongly to “spillovers” caused by shocks in CBDC-emitting regions.
And since investors would love to buy up CBDCs and prefer them to bonds and other assets because of their cash-like properties, the effect of these cross-border “spillovers” could be “significant”.
“Having a CBDC greatly increases the international impact of shocks, thereby increasing international connections.”
The authors justified their claims in writing,
“The existence of a CBDC has a significant impact on optimal monetary policy […] and strengthens the asymmetries in the international monetary system. In particular, the granting of a CBDC by the domestic economy considerably restricts monetary policy autonomy in foreign trade. It is forcing the foreign central bank to change its monetary policy stance to mitigate the stronger international impact of the CBDC. “
The ECB has stepped up its efforts to introduce a digital euro in recent months – while in Asia the central banks of Japan and South Korea are apparently playing a frantic catch-up game against Beijing, which already looks like the final phase of the digital yuan tests.
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