Digital currency is emerging as an ultimate solution for the people across the world especially during this time of COVID-19 which is a huge global crisis. European Central Bank is also stepping up to provide a Central Bank Digital Currency, CBDC for the retail customers. The bank will go through an analytical investigation to provide CBDC to the customers. Yves Mersch, central bank’s executive has said that this is going to completely transform the complete banking industry. A task force of the central bank is working on all the implications that are related to CBDC.
Mersch has described two different ways which could be used to design the CBDC. CBDC could be either operated as a digital token which is decentralised or it could be based on the deposit accounts which are controlled by the central bank.
Mersch has also said that the bank is looking for questions which need to be answered for the circulation of CBDC. He also looks towards measures that could be used to reduce the effect of CBDC on the financial system. He suggests that remuneration of CBDC below market rates could be used for the reliability on the market-based alternatives. He also suggested the option of a tiered remuneration system.
This option suggested by Mersch will work on a two-tier system in which one will be used as a mode of payment. While another one will be there to act as a store of value. He has also said that in order to apply this kind of scheme there is a need to learn from the experience of various exchange rate regimes. To use this scheme there will be a need for an additional high-level comprehensive investigation. By the end, Mersch focuses on the need of being ready towards any kind of functioning related to CBDC.
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