The digital currency in the proposal would be available to a limited group of financial entities. The BoE sees great benefits in a digital euro, these benefits and advantages include the automation of interest payments.
The Bank of Spain (BdE) published in its Financial Stability Magazine no. 40, an analysis of the improvements that a wholesale digital euro, based on what it calls bitcoin or blockchain (CBDC) technology, would bring to the financial system.
The publication clarifies that there would be greater efficiency, transparency, and traceability of all types of operations, in particular, multi-currency ones.
The text states that a wholesale sovereign digital currency (WCBDC) would be the most feasible option. “wholesale” means that it is a digital currency that would be available only to a limited group of financial intermediaries.
In the case of a retail sovereign digital currency (RCBDC), which would be accessible to all, it would imply a more complex process, with a high group of potential users, and with a wide variety of edges and implications in many areas.
The magazine states that the main goal of this digital currency would be to bring citizens a risk-free means of payment that meets their needs.
A WCBDC Would Impact the Eurosystem
The analysis clarifies that with the emission of a WCBDC, the Eurosystem, which is the monetary authority of Europe funded by the European Central Bank and the central banks of each country in the eurozone, would receive a direct impact on its functions since it is the responsible for monetary policy, supervisor, of financial institutions and promoter of the functioning of payment systems.
The Eurosystem is currently creating a campaign to promote efficiency, innovation, and greater integration between Europe’s financial markets. That is why the emission of a blockchain-based ‘digital euro’ is so important.
The bank’s analysis is also focused on identifying precisely how the emission of a currency of this kind would impact the current Financial Market Infrastructure (MFI). The text argues that international multi-currency transactions are manual processes, expensive, hard to handle and track. They are finding it hard to know both the actual date of availability of the funds at the destination, as well as the exact amounts of the operations.
Synchronizations of the Operations Represent a High Cost for the Entities
In contrast, the analysis shows how, with the use of a blockchain, this type of transaction would be possible, it would improve the user experience, reduce time, complexity, and costs with greater transparency; this by having more complete information that would allow knowing the status of transactions in real-time.
Also, the use of blockchain would represent a great chance in terms of reducing counterparty risk, since it can be settled directly in central bank money, and reducing the costs of international operations. Counterparty risk is the probability that one of those involved in a transaction may revert on its contractual obligation in credit, investment, and commercial transactions.
By: Jenson Nuñez
