Click here for the latest news about cryptocurrencyCentral banks might gain from distributing cryptographic versions of fiat currencies.
This is according to a paper published by Ben Fung of the Central Bank of Canada and Walter Engert from the Office of the Superintendent of Financial Institutions.
The aforementioned published a paper just recently that examined the pros and cons for central banks issuing cryptocurrencies.
The paper concludes with the question of weighing the worth for such institutions to offer cash or central bank digital currency (CBDC).
This is especially if the demand drops deeply enough.
Although it ties the query to the idea this would need to come at the expense of cash use.
The paper said:
"Is it sufficient for a central bank to supply only reserves to qualified financial institutions? Put differently, is a 'cashless society' a sound outcome?"
The paper goes on to take a look at six different supposed benefits to a central bank for issuing a digital currency.
However, it shelves all but three: payments for consumers, financial inclusion and stability.
For consumer payments, the authors say that a "CBDC would facilitate transactions that are currently foregone because of frictions that inhibit some types of transactions."
In particular, it would lessen friction for online payments and encourage smaller merchants to offer services over the Internet.
In some markets, they also see profits in lessening costs for retail payments to consumers.
The authors claim that financial inclusion would only really benefit in developing economies.
But it names several other existing solutions around the world that seem to be closing the gaps just as well.
"Financial inclusion does not provide a compelling motivation for CBDC in most advanced economies, including Canada," the authors said.
Lastly, the paper gives varied results for better financial stability.
On one hand, "the financial systems in Canada and other countries feature highly levered banks conducting liquidity and maturity transformation and operating at the core of the payment system," the authors write.
"It is well known that under some conditions this set-up can be unstable, and in severe cases the stock of inside money can contract, with adverse negative externalities for the economy."
Digital money would offer consumers a risk-free way to store value without exposure to that risk.
On the other hand, the simplicity of leaving bank deposits for a fiat crypto could hasten financial mayhem.
The paper represents the views of its writers.
It does not reflect that of the Central Bank of Canada.