If you’ve perused Crypto Twitter at all over the past few weeks, you likely have noticed incessant discussion surrounding central bank-backed digital assets, also referred to as CBDCs.
It seems that this subset of this market is all the rage recently, with a number of prominent countries, financial institutions, and economists making mention of national cryptocurrencies.
Although many have been in support of such projects, citing their potential to allow for more flexible (and irrational) monetary policy and to prevent financial crimes, not everyone is convinced.
The head of Russia’s central bank, Elvira Nabiullina, recently argued that the monetary authority does not see the benefits in national cryptocurrencies.
Russia Not a Fan of Central Bank Crypto
In comments made at a conference in Sochi, Russia on Thursday, Elvira Nabiullina said that the Central Bank of Russia does not see any compelling reasons to launch a national cryptocurrency.
According to a report from TASS, she said that a CBDC has benefits that are “not obvious for us”, going against the oft-touted narrative on Wall Street, Silicon Valley, and on the hill that some form of digital money is the future:
“Not only for technological reasons, but also because it is [difficult] to really estimate what advantages will the national digital currency give, for example, in comparison with existing electronic non-cash payments. There are many risks, and the advantages may not be obvious enough.”
Nabiullina has previously said that even if there was an incentive to go crypto, so to speak, would society be open to giving up cash for the digital alternative?
While there are signs of cash going extinct in places like China, there may be a heavy reliance on physical cash in places of the world where privacy is valued or where there isn’t widespread internet/smartphone penetration.
CBDCs to Destroy Decentralized Cryptocurrency, Critic Asserts
While Russia’s central bank doesn’t see any overt benefits with launching CBDCs with the current technological stack, there is one potential benefit that may please financial incumbents.
Nouriel Roubini, a New York University professor and economist who is (in)famous for his hatred of Bitcoin, argued in a column last year that the rise of CBDCs would “close the door on crypto-scammers.”
“CBDCs [are] likely [going to] replace all private digital payment systems,” Roubini wrote. He explained that unlike retail banks and platforms like PayPal, whose services are subject to friction (high transaction fees, failed transactions, and a high barrier to entry), central banks are “efficient and cost-effective” at intermediating and lending money.
“By allowing any individual to make transactions through the central bank,” Roubini wrote, “CBDCs would upend this arrangement, alleviating the need for cash, traditional bank accounts, and even digital payment services.”
The economist went as far as to say that CBDCs would eliminate any need for “not scalable, cheap, secure, or actually decentralized” cryptocurrencies, including Bitcoin, by the simple virtue of central banking technology.
What’s funny is that some central banks are seemingly acknowledging this. As reported by Blockonomi previously, the Finance Ministers of both Germany and France believe that the European Union should launch their own cryptocurrency in direct response to Libra, presumably to stem its adoption from ever taking place.
Their thesis is that money isn’t something that should be left to private institutions, even if the network will be decentralized as Facebook promises Libra will be, and that more control and financial security can be had through a CBDC.