The amount of cash in circulation is declining in some
countries. At the same time, we are witnessing the rise of
electronic payment methods in retail transactions. Although
these are often more convenient and efficient than cash, such
digital means of payment are controlled by commercial agents.
This could mean that one day – even if it seems like a
distant prospect – every single person may have to
register with a private entity just to participate in the trade
of goods and services.
In the long term, such trends may lead to increased levels
of financial exclusion. We still have vulnerable groups which,
for one reason or another, are underbanked or do not use
electronic payment instruments in their current form. Moreover,
should private payment systems fail in case of a systemic
disruption, we could find ourselves having no adequate
alternative to save the day.
This is where the idea of central bank-issued digital money
comes in, a concept widely referred to as Central Bank Digital
Currency (CBDC). Importantly, it would differ from traditional
reserve accounts. The retail version of the CBDC would be
available universally: by complementing or replacing paper
banknotes and coins, it would ensure people's continued access
to secure and reliable central bank money.
CBDCs could have important and, perhaps, desirable
implications for a wide array of policy areas. Some say that
issuance of an interest-bearing retail CBDC could improve the
transmission of monetary policy – if indeed it is used
widely. For instance, it may strengthen the pass-through of
policy rates, or alleviate the effective lower bound
The issue here is that the retail CBDC could become more
attractive relative to a claim on a private bank. Being a safe
asset and bearing no liquidity or credit risk, it might
essentially substitute for bank deposits. In the extreme
scenario, CBDCs could encourage 'digital' bank runs, which
could occur at an unprecedented speed and scale.
As a consequence, central banks may see their roles
fundamentally changed, to the point where they may have to
extend credit to the economy. Although central bankers tend to
be competent officials, I have to admit that market forces are
generally more efficient in allocating resources.
Despite these considerations, we at the Bank of Lithuania do
not reject the potential that the CBDC can carry. Yet, at this
point we remain cautious.
Going forward, we will take into account the possible
alternatives. The Bank of Lithuania already provides an
effective payments infrastructure called CENTROlink. The system
supports 24/7 instant payments and is accessible to all
operators, including fintech companies. By creating a level
playing field for different types of market participants, we
aim to encourage competition and, indeed, financial
In some sense, such developments limit the potential
benefits of the retail CBDC. We therefore feel the need to
acquire a better understanding of risks and added value of the
CBDC. Notably, research carried out by international
organisations, such as the IMF or standard-setting bodies,
could play an important part in this regard.