There are at least 80 central banks around the world that are looking at digital currencies said Christine Lagarde, the head of the European Central Bank (ECB).
“We think that it’s a duty of us to actually have available digital currencies that would operate to the benefit of consumers,” Lagarde said this Tuesday at a press conference, adding:
“So, what would it look like? Well, it could be used like banknotes. I don’t think it is like banknotes, because it will not have the degree of anonymity that banknotes have.”
Lagarde pointed out that in consultations with consumers who responded in very large numbers, they said “we want our privacy to be protected, but we don’t want anonymity because they understand the risk of anonymity.”
Studies on central bank digital currencies began as early as 2014 in China with Sweden in particular leading a debate on what an e-krona or an e-euro or an e-dollar would look like.
There are in particular concerns that commercial banks would lose their role as safe keepers of deposits if central banks open access to everyone with the design now moving to reflect the current system where central banks issue the currency to commercial banks which then provide it to the public.
Like now, the public would then be able to access their digital currency through a bank app, with it probable only banks would be able to provide this specific digital currency app, and thus the digital currency itself would remain within the banking system, but some banks may well experiment with self-custodian wallets.
For there to be additional public benefits, coders in particular should be able to publish their smart contracts to this bank blockchain, so creating automated finance and things like NFTs, something that would mean there would have to be a public blockchain, albeit not publicly controlled to the same degree as bitcoin.
In such case all that would remain from a technical perspective is privacy concerns as the central bank and commercial banks would have complete insight on all economic activity, but such concerns can be addressed by allowing self-custodian wallets that generate their own bank-chain address, connecting to the bank-chain network through Simple Payment Verification (SPV) wallets like in bitcoin.
The digital bank coins and bitcoin would then compete on monetary qualities, with bitcoin having a fixed limit while fiat coins have a managed supply.
Digital currencies however are at the early stages with discussions ongoing regarding their design, except for some pilots in China where no self-custodian wallets are allowed for e-yuan, which also doesn’t have publicly publishable smart contracts.
A design that makes the digital yuan no different than current digital banknotes, and thus it has largely underwhelmed according to responses from early users.