The National Bank of Denmark has questioned the motivation for central bank digital currencies (CBDCs) among developed countries. The central bank also said that while it is open to new forms of digital currency and will hold a conference on the subject in the fourth quarter of 2022, the Danish financial system does not have a pressing need for it.
The National Bank shared this position in an analysis paper it published titled “New Types of Digital Currency”. The document discussed digital assets at length, including stablecoins, wholesale CBDCs, and retail CBDCs.
For CBDCs, the central bank pointed out that the main motivation for central banks to explore them, especially in the European Union, is that retail CBDCs act as a trust anchor for digital money once cash disappears. This motivation does not exist for Denmark as the country is already a leader in the use of digital currency.
Currently, only around 10% of physical transactions in Denmark use cash, but the system works well relying on digital bank money and not a CBDC. Similarly, the National Bank also cites its conclusion that citizens of the country who store money in cash do so out of anonymity and not for systemic trust issues for digital money.
“At present, and with the associated costs and possible risks, it is unclear how retail CBDCs will create significant added value compared to existing solutions in Denmark,” the report states.
However, the report says Denmark is not completely ruling out the prospect of a CBDC in the future and is still committing resources to study it. In fact, he makes several arguments in favor of CBDCs, including that they can increase financial inclusion, improve the resilience of the financial system, and reduce reliance on foreign payment infrastructure.
Denmark’s history with CBDCs
Denmark began exploring the launch of a CBDC called e-Kroner in 2016. However, according to data from CBDCTracker, the European country suspended plans in December 2017, stating that the benefits do not match the challenges that the exploring the possibility would have. To vomit.
Since then, the country has only explored other use cases for blockchain technology. The Danish Ministry for Development Cooperation has published a report on how blockchain technology can be used to fight corruption in 2020.
While Denmark is hesitant to explore CBDCs, other countries are not letting innovation pass. According to a tally by the Bank for International Settlements (BIS), 105 central banks around the world are at various stages of their CBDC pilots.
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