While giving a speech on Friday, Benoît Coeuré said that decentralized finance and stablecoins will challenge the business models of banks and monetary authorities need to act quickly in order to develop their digital assets. Coeuré is a former member of the executive board of the European Central Bank and is currently a senior official serving at the Bank for International Settlements. The comments from the veteran policymaker highlight the increasing angst the financial authorities are dealing with due to the boom in the crypto space, along with other digital finance innovations.
Coeuré said that both stablecoins, which are considered a store of value in the digital market, and financial firms are a threat to intermediaries and depository institutions, such as banks. Financial watchdogs and central banks are now facing urgent questions and are not sure of how to respond. He said that it was the responsibility of the central banks to deliver financial stability and price stability and they have to retain this ability. This means that they have to take action while the current system is in effect, which means they should act now. The policymaker is heading the research on behalf of BIS into central bank digital currencies.
He also urged the other policymakers to quicken their response in the face of cryptocurrencies and to work quickly on digital assets that are backed by national policymakers. Otherwise, he warned that they will lose the key role they have in the financial system. He added that the time for central banks to get going has long passed. It takes years for central bank digital currencies to be rolled out, whereas cryptocurrencies and stablecoins are already here. Therefore, it is even more urgent for central banks to get started. He also said that the banks, as well as regulators, have to consider the role they would play after this CBDCs are introduced and that of intermediaries in the digital financial system.
Likewise, the implications of the design of these central bank digital currencies also has to be taken into account. According to Benoît Coeuré, central banks regard the traditional financial firms to be part of the new infrastructure of digital payments. However, he said that DeFi platforms, global stablecoins and big tech companies would challenge the models of the banks. A number of prominent central banks have been slow in responding to the challenge of Bitcoin and other digital currencies, as opposed to policymakers in developing economies that have already taken their CBDC projects to an advanced stage.
China has already moved to the trial stage when it comes to their CBDC and it will be rolled out in the country at the Winter Olympics as part of their experiment. On the other hand, the ECB had launched their investigation phase in July this year for a digital euro. Likewise, the US Central Bank has also not taken a decision of whether to look into developing a digital version of the premier reserve asset in the world i.e. the US dollar.