The Ultimate Goal of CBDC: Replacing Commercial Bank Deposits

It is reported that Miguel Fern á ndez Ord ó ñ ez, former governor of the Spanish Central Bank, delivered a speech during the digital euro conference this morning. Ord ó ñ ez stated that the ultimate goal of CBDC is to completely replace commercial bank deposits. In other words, all commercial banks should become so-called “narrow banks”. If Silicon Valley Bank is a Silicon Valley CBDC service provider, you will never run because CBDC is money. This is not a payment commitment that may fail.

Former Central Bank Governor of Spain: CBDC’s ultimate goal is to completely replace commercial bank deposits

Introduction

The digital euro conference this morning featured a speech by Miguel Fernández Ordóñez, former governor of the Spanish Central Bank. In his speech, Ordóñez highlighted a critical focus of Central Bank Digital Currency (CBDC), which is to replace commercial bank deposits fully. The speech raises questions on the future of commercial banks.

What is CBDC?

CBDC is digital currency issued by the central bank that uses blockchain technology. The currency operates as legal tender and can be used for digital transactions. CBDC is different from cryptocurrencies like Bitcoin, which uses blockchain technology but is not legal tender.

Why is CBDC important?

CBDC has a unique feature that makes it attractive to central banks and governments. CBDC is a cashless transaction that operates under a central authority, bringing in more control and security. In contrast, physical cash deteriorates over time, and it is vulnerable to political and economic instability.

Replacing commercial bank deposits

The ultimate goal of CBDC is to replace commercial bank deposits, according to Ordóñez. This goal raises questions about the future role of commercial banks and their impact on the global economy. In a CBDC system, all transactions would go through the central bank, and there would be no need for commercial banks to hold deposits.

The Rise of Narrow Banks

The concept of narrow banks is not new, but it has gained more attention due to the rise of CBDC. Narrow banks are financial institutions that hold highly liquid and low-risk assets, such as government bonds and cash, and do not engage in traditional banking activities like lending. In a CBDC system, the central bank would be the only place that holds reserves, and all other financial institutions would become narrow banks with limited activities.

Silicon Valley CBDC Service Providers

In his speech, Ordóñez mentioned that Silicon Valley banks providing CBDC services would not be a concern. According to him, CBDC is money, and there is no risk of payment failure. If CBDC service providers were to fail, the central bank could take over and ensure the stability of the monetary system.

Conclusion

The remarks made by Ordóñez regarding the ultimate goal of CBDC raise questions about the future role of commercial banking and the global economy. The rise of narrow banks and CBDC service providers will transform the traditional financial system. However, CBDC’s success will depend on its ability to provide safety, stability, and ease of use.

FAQs

1. What is CBDC?
CBDC is digital currency issued by central banks that uses blockchain technology. It operates as legal tender and can be used for digital transactions.
2. Why is CBDC important?
CBDC is important for its unique feature that provides central banks and governments with greater control and security in cashless transactions.
3. What is the ultimate goal of CBDC?
The ultimate goal of CBDC is to replace commercial bank deposits, and all other financial institutions would become narrow banks with limited activities.