In a report titled "Konzept #19 - What We Must Do to Rebuild" that was published this week, Deutsche Bank listed economic evaluations and proposals to aid global economies hit by the COVID-19 pandemic. Containing sections related to environmentalism, small business protection, and the radical "work from home tax" proposal which got under fire globally, the report further discusses a shift to digital currencies and, more specifically, central bank digital currencies (CBDCs).
Citing that "cash has come under much scrutiny during the pandemic" due to concerns about virus transmission, Deutsche Bank Macro Strategist Marion Laboure writes of a need to "promote" digital currencies so as to not fall behind the countries that already do.
As China's DC/EP (digital currency/electronic payment) and Sweden's e-krona pilot programs lead the charge, other countries may find that if they don't speed up their own development, their private sectors will end up using the digital currencies that become available first, including the policies attached to them.
But development is slower in most developed nations, writes Laboure, with many central banks only now beginning to "rethink the seventeenth-century cash model" and explore CBDCs.
In an online panel in October, Federal Reserve chairman Jerome Powell confirmed these assumptions as he delivered little of substance to instill confidence that U.S. citizens will see a CBDC anytime soon. The European Central Bank (ECB) so far published no more than explorative reports and a survey on the concept of a digital euro.
Still, the interest is there as the development of a central bank currency has become a race between global leaders—with the U.S. currently tailing far behind China.
According to a January report by the Bank of International Settlements, 80% of the world's central banks are engaging in some form of work on CBDCs.
Writing that "sooner or later, CBDCs will replace cash," Deutsche Bank details that central banks in many developed nations are confronted with a strong affinity towards cash, mostly routed in privacy concerns with digital currencies.
Such "cultural/privacy norms" must be "overcome" in the advancement of CBDC development, says Laboure, as a survey conducted by Deutsche Bank found many people believe cash to always be around.
CBDCs "could help disintermediate the banking system" as customers store their money directly at a central bank rather than at a private bank, Laboure writes. Should this be the case, the global multi-trillion dollar banking sector may be approaching the end of its days, a development bringing with it drastic financial and economic implications.
Whether CBDCs will come to life in a form that makes today's banking system unnecessary remains to be seen. In the meantime, some banks can be seen exploring alternatives, possibly as a way to establish new revenue streams.
In late October, leading Southeast Asian bank DBS published a page on its website elaborating on the establishment of a cryptocurrency exchange that targets institutional customers—an accidental release, it turned out, as the bank is still in the process of obtaining the necessary regulatory approvals. But the "pre-release" may hint that financial services surrounding cryptocurrencies could prove to become a path worth exploring, as central banks push to conquer the fiat system.