(Business in Cameroon) - In its recent Research Bulletin, the Bank of Central African States (BEAC) dedicated an article to the issue of central bank digital currencies as alternatives to cryptocurrencies. Written by Jacques Eloundou Ndeme, head of the Directorate of Payment Systems at the central bank, the article is titled "Are central bank digital currencies an answer to crypto-currencies?"
According to the author, the introduction of central bank digital currencies (CBDCs) can disrupt the existing banking system if citizens decide to keep digital currencies in their wallets instead of keeping cash in banks. In that scenario, banks would not have enough cash to grant credit and offer other financial products, he explained. As a result, the said banks could raise the interest rates they offer on savings accounts to encourage customers to keep their deposits with banks, he added concluding that this will be bad for those who apply for loans. Indeed, as he illustrated, when the interest rates on savings increase, interest rates on loans follow the same suit.
In addition, the author writes, the use of digital wallets can prompt users’ distrust towards bank accounts. Unless banks are allowed to manage digital wallets, people may stop using bank payment solutions, he points out. He believes that two facts can help minimize the risk of users’ turning away from those payment solutions. First, there is usually no interest on CBDCs held by users in digital wallets by imposing transaction limits for digital wallets. Secondly, when managing digital wallets, banks can impose transaction limits.
For Jacques Eloundou Ndeme, there is also the risk of computer systems failing or falling prey to cyber-attacks. CBDCs lead to centralization, which could exacerbate the already widespread cyber vulnerabilities and extend the target ranges to include the central bank, he thinks.
Therefore, he suggests, the central bank will need a military-grade computer security system to prevent those attacks from causing losses for citizens and compromise the trust they may have in the digital currency.
The article also states that there is a risk of CBDCs being used to launder money and fund terrorism. Financial institutions would need robust systems, along with national legal frameworks, to combat those threats, Jacques Eloundou Ndeme explains. In that regard, the systems must be designed with illicit flow and use prevention guidelines in mind, he writes.
The central bank researcher also indicated that the illicit flow and fund use prevention measures taken must be considerate of users’ privacy because CBDCs give central banks higher controls, which sometimes go beyond their prerogatives. Indeed, the ability to trace accounts and transactions gives the institutions power to intrude on users’ private lives hence, when moving to create its CBDC, the BEAC must reflect, in collaboration with national regulators, on the metadata to be collected and how they will be used. This will prevent cases of citizens rejecting the regional CBDC because of its intrusiveness, Jacques Eloundou Ndeme concludes.