ECUA DIGITAL WALLET
Is cash in danger of extinction? Unlikely. At least in the short term - and in most countries - but it is increasingly common to perform fully cashless operations or even find establishments that do not accept cash. However, it is a possible reality that has not gone unnoticed, both by the private sector, as well as by regulators, and especially by several central banks. Several questions then arise. What would be the consequences of a reality without cash? Who should issue a digital currency? Should central banks take a more leading role?
The financial sector is perhaps one of the most active in the development of new technologies and hundreds of fintechs have millions of users. For example, bitcoin, blockchain, and cryptocurrencies are already relatively familiar terms. Bitcoin proposed, in very broad terms, an electronic payment system in which cryptography would replace the trust placed in a third party and its intermediation (i.e. a bank). On the other hand, the technology behind bitcoin, blockchain, currently has countless applications in different industries, and shortly after the emergence of bitcoin, dozens of cryptocurrencies emerged, although not without criticism.
Bitcoin and other digital currencies were not the answer to create a world without cash, but they highlighted some of the limitations of the payment system and new initiatives continue to be developed. Currently, for example, Libra, the digital currency impulsed by Facebook, is usually the headline of different news and cause of concern for regulators and politicians in the world. Interestingly, other actors that have taken the initiative to issue digital currencies, the central banks.
Christine Lagarde, at the time Managing Director of the IMF and future President of the European Central Bank, indicated that the possibility of a State issuing digital currency should be considered. That is, digital currencies issued by central banks (or CBDC for its acronym in English, central bank digital currencies). As the name implies, the CBDC would act as a new form of money, digitally issued by a central bank, and one of the most relevant particularities of the CBDC is that they would be legally accepted. One of the main differences with respect to unofficial digital currencies (currently regulated as securities or commodities in different countries).
Among the reasons discussed for issuing CBDC are financial inclusion, particularly in a scenario where the use of cash is reduced or eventually discontinued; safety and protection for the consumer; low transaction costs; Privacy; among others. However, the design of a CBDC and the specific characteristics of the country that issues it would define its success or failure. For November 2018, for example, it is estimated that 69% of central banks were already analyzing it, including Australia, Bahamas, Brazil, Canada, China, Curacao, Denmark, Israel, Norway, Philippines, Sweden, United Kingdom, and Uruguay.
Certain initiatives were not successful. Ecuador is one of the countries that tried to implement its version of “electronic money”, finally terminated in April 2018; and the Venezuelan "Petro" failed drastically. However, there are other much more sophisticated initiatives, such as Sweden's E-krona; China is one of the countries most interested in the development of its CBDC, particularly in the face of the possible entry of currencies such as Libra. The Bank for International Settlements (the bank of central banks) has also analyzed the potential advantages and challenges of CBDC, and highlights in an interesting way one of the possible consequences of not issuing CBDC. That is, that private currencies displace money issued by a central bank.
In summary, CBDCs are another example of how money could evolve, and a possible reality without cash, albeit distant, shows how technology and innovation can influence the integrity and stability of the financial system. Certainly, not all innovation is necessarily positive, but openness to new technologies and timely discussion is necessary, which in turn can contribute to public policies and align public and private interests.