Cryptocurrencies Could Allow Central Banks to Stay in Money Game

(Bloomberg) -- Issuing digital currencies would allow central banks to stay relevant in a time of disappearing cash, according to Cornell University professor Eswar Prasad.

“It’s going to mean that central banks remain in the game,” Prasad, a former IMF China division chief, told Bloomberg Television’s Alix Steel in an interview on Monday. “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.”

With policy makers from Uruguay to Canada already researching the idea, International Monetary Fund Managing Director Christine Lagarde last week urged central banks to look into issuing digital currencies. Still, Prasad highlighted that the world’s biggest advanced economy central banks -- the Federal Reserve, European Central Bank and Bank of Japan -- were taking a “step-back approach.”

While central-bank digital currencies would crimp illegal activity linked to cash and allow them to impose negative nominal rates if necessary, Prasad acknowledged privacy concerns, displacement of commercial banks’ role in retail payments, hacking and the general sense of uncertainty linked to implementation.

“It’s a legitimate question whether China, for instance, has the technical infrastructure and also the government institutions that are necessary to support a central bank digital currency. But they certainly don’t want to be left behind and all of these countries are moving forward to see if they can harness this technology in a way that would benefit them and their citizens.”

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