Although a central bank digital currency (CBDC) can help improve financial inclusion, it would complement other electronic payment systems and even strengthen the role of the Bank of the Republic, The entity assured that for now there are no reasons that justify the issuance of a retail MDBC in Colombia.
(More: Inflation in Colombia: Analysts see possible increases in the remainder of 2024).
MDBCs are digital versions of cash issued and regulated by central banks and some say they are safer and inherently non-volatile, unlike cryptoassets or so-called cryptocurrencies.
An International Monetary Fund document says that MDBCs are not a novelty, having appeared approximately 30 years ago in Finland.
However, the surge in research into CBDCs on a global scale is a recent phenomenon. Central banks around the world are now looking at the potential advantages of issuing their own digital currencies, including how they improve the efficiency and security of payment systems.
(Read: Alert for fake ‘G5 bills’: this is how you can avoid scams, according to Banrep).
According to the Bank of the Republic, the MDBC, It would be a new form of legal tender, complementary to cash (notes and coins) and the reserves of financial institutions in the deposit accounts of the central bank.
International evidence suggests that this product has the potential to benefit the payments ecosystem. However, the risks associated with its issuance, the identification of use cases where its provision is essential, and the robustness and economic feasibility of its technological and operational implementation are still being analyzed.
Digital currency
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There are several motivations for considering the possible issuance of a CBDC, such as promoting access to electronic payments and financial inclusion; facilitating competition, efficiency and resilience of the payment system; and maintaining access to central bank money in the digital age to safeguard the monetary and financial system.
(See: How effective is foreign exchange intervention and when is it justified).
I could also improve financial inclusion in countries with limited financial systems, reduce the costs and risks associated with cash and increase the traceability of transactions, safeguard people’s ability to make payments, by overcoming challenges such as declining cash acceptance, complementing other electronic payment systems, fostering competition, stimulating innovation and competition, and facilitating the standardization and interoperability of domestic and cross-border payments.
Additionally, it could ensure the public provision of money and payments, becoming an anchor of trust in the monetary system, serving as a reference and backing for other types of money and guaranteeing and maintaining the relevance of national currencies vis-à-vis cryptoassets and foreign currencies, ensuring the effectiveness of monetary policy and limiting currency substitution. However, credibility in the value of the national currency remains key to preventing its substitution.
(More: Interest rates for Colombian households have fallen more than the rate of the Bank of the Republic).
The Issuer points out that An inadequate design can lead to financial disintermediation, lower credit provision, higher interest rates, more unstable or expensive sources of funding, and greater concentration and risk taking.Furthermore, it may reduce the effectiveness of monetary policy by shifting loanable funds to the MDBC and require a more active lender of last resort policy in stress situations, as it may increase the risk of bank runs.
Holman Rodriguez Martinez
BRIEFCASE
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