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  • Vitas Vasiliauskas  speaks about CBDC at a conference in Washington.
  • The head of the Bank of Lithuania discusses the risks and benefits of the new form of money.

The head of Bank of Lithuania and a member of the ECB’s governing council Vitas Vasiliauskas shared his views on risks and benefits of state-issued cryptocurrencies often referred to as CBDC (central bank digital currency).  

“The CBDC would be a novel type of central bank money. Although also digital, it should be distinguished a traditional reserve account. The CBDC would also be fundamentally different from private crypto assets. This is because it would be- money! It would serve as a medium of exchange, a means of payment and a store of value, just like the current forms of central bank money,” he said speaking at the Reinventing Bretton Woods Committee conference “Managing the Soft Landing of the Global Economy” in Washington.

The text of the speech was published by the Bank of International Settlements (BIS).

He also added that if CBDC is used for retail purposes, they should be made available to the general public, while access to the wholesale should be granted only to financial institutions.

Speaking of the potential benefits of the central bank’s digital money, he mentioned the efficiency of cross-border payments and settlements, decreased credit risk and counterparty liquidity risk.

Apart from that, he mentioned positive side effects for central banks’ monetary policy:

“Some say that issuance of the interest-bearing retail CBDC could potentially improve the transmission of monetary policy – if indeed it is used widely. First, it may strengthen the pass-through of the policy rates to deposit and lending rates. Second, the CBDC may alleviate the effective lower bound constraint, making it possible to go deeper into the negative territory.”

However, Vitas Vasiliauskas emphasized that there are some risks associated with digital currencies issued by central banks.  

“The amount of cash in circulation is declining in some countries. This could mean that one day, even if it seems like a distant prospect “” every single person will have to have an account with a private entity just to make payments. Unfortunately, this may lead to increased levels of financial exclusion,” he warned.