The race to become the first major global economy to issue a central bank digital currency (CBDC) has just intensified – with the European Central Bank (ECB) seemingly admitting that when it comes to CBDC launches, it may pay to be first.
These were the findings of a new paper authored by Massimo Minesso Ferrari, an economist in the ECB’s International Policy Analysis Division, and two other ECB CBDC policymakers,
In the paper, Ferrari et al wrote,
“Introducing a CBDC sooner rather than later could give rise to a significant first-mover advantage to its issuer.”
They added that countries without CBDCs would initially find themselves at a distinct disadvantage over others with a bank-issued token, with the former possibly losing control over its own monetary policy – by reacting strongly to “spillovers” caused by shocks in CBDC-issuing regions.
And as investors would be keen to buy up CBDCs, favoring them to bonds and other assets due to their cash-like properties, the effect of these cross-border “spillovers” could be “significant.”
“The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages.”
The authors justified their claims by writing,
“The presence of a CBDC has significant effects on optimal monetary policy […] and strengthens asymmetries in the international monetary system. In particular, issuance of a CBDC by the domestic economy curtails monetary policy autonomy in the foreign economy to an economically significant extent. It forces the foreign central bank to alter its monetary policy stance to mitigate the stronger international spillovers created by the CBDC.”
The ECB has ramped up its efforts to roll out a digital euro in recent months – while in Asia, the central banks of Japan and South Korea appear to be playing a frantic game of catch-up with Beijing, which is already in what looks like the final stage of digital yuan testing.
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