Bank of Italy Deputy Governor: Gov't Cryptocurrencies Can Save EU up to €76 Bln

Fabio Panetta, deputy governor of the Bank of Italy, gave a keynote address focused on central bank digital currencies at the SUERF/BAFFI CAREFIN Centre Conference in Milan Thursday, June 7.

Unlike cryptocurrencies - "a liability belonging to nobody" - the deputy governor stressed from the outset that a CBDC would be a liability of the central bank, backed by its assets.

First addressing CBDCs as a potential means of payment, Panetta considered their advantages as "At best unclear" when compared with the existing digital payment mechanisms offered by the private sector.

Where Panetta saw a key potential justification for CBDC issuance was to reduce costs in the production, transportation, and disposal of cash.

Considering CBDCs' potential use as a store of value, Panetta highlighted that in addition to virtually zero storage costs, a CBDC could function as an asset with "Unique characteristics," free of credit and liquidity risks.

Panetta however nuanced concerns that a switch from bank deposits to a CBDC would necessarily threaten the financial system as a whole, even though it might squeeze the net interest margin profitability that underpins banks' lending models.

Panetta notably raised traceability and privacy - "Probably the most important issue" surrounding CBDCs - as a "Political" question for society as a whole, beyond the purview of central banks alone.

Last month, the Bank of England issued two staff working papers devoted to the issue of CBDCs.

The first laid out various risk analyses for CBDCs, finding that there was no reason to believe that introducing a CBDC would have adverse effects on private credit or on total liquidity provision to the economy.

The second paper suggested, like Panetta, that the adoption of CBDCs could pose a competition threat to commercial banks, echoing a March report by the Bank of International Settlements that also suggested that "In times of financial stress, domestic investors are likely to consider CBDC attractive relative to bank deposits, with many possible side effects for financial stability."