Economies Need Central Bank Digital Currencies More Than Bitcoin

While investors in Bitcoin and other cryptocurrencies may disagree, when it comes to digital money, central banks have the right stuff.

That is according to the Bank for International Settlements (BIS), which has put its stamp of approval on central bank digital currencies (CBDCs) as it urges those institutions to pick up the pace.

Central banks are perfectly placed to offer “settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy,” which needs to be designed “with the public in mind,” the global banking regulatory body argued in a study released on Wednesday.

A form of digital money, CBDCs are denominated in the national unit of account, which is a direct liability of that central bank. According to PwC, more than 85% of central banks are currently investigating digital versions of their currencies, with China now in the lead.

The spotlight has increased on digital currencies this year, largely due to the popularity of Bitcoin, which the BIS again criticised, as it brandished cryptocurrencies as speculative assets used at times for financial crimes and ransomware. “Bitcoin in particular has few redeeming public interest attributes when also considering its wasteful energy footprint,” it said.

Cryptocurrency risks have been evident this year, as Bitcoin has taken investors on a wild ride, with prices down more than 50% from an all-time high of over US$64,000 reached in mid-April.

Neither are stable coins going to work as digital money, said the BIS, describing those as “ultimately only an appendage to the conventional monetary system and not a game changer.”

The BIS’ fresh urgency to get central banks moving comes amid its concerns that Big Tech could get there first as it muscles into financial services. And user data in existing technology businesses such as social media or e-commerce offer those companies a competitive edge. That can lead to a so-called “data-network-activities” loop that creates a vicious circle of “data silos, market power and anti-competitive practices,” it warned.

Left in the hands of central banks, though, CBDCs “could form the backbone of a highly efficient new digital payment system by enabling broad access and providing strong data governance and privacy standards based on digital ID,” it said.

Of course, international collaboration will be paramount, the BIS added. Federal Reserve Chair Jerome Powell in May promised his central bank would take the lead in “developing international standards for CBDCs.”

Australia is in the midst of a ‘baby recession’ with preliminary estimates showing the number of births in 2023 fell by more than four percent to the lowest level since 2006, according to KPMG. The consultancy firm says this reflects the impact of cost-of-living pressures on the feasibility of younger Australians starting a family.

KPMG estimates that 289,100 babies were born in 2023. This compares to 300,684 babies in 2022 and 309,996 in 2021, according to the Australian Bureau of Statistics (ABS). KPMG urban economist Terry Rawnsley said weak economic growth often leads to a reduced number of births. In 2023, ABS data shows gross domestic product (GDP) fell to 1.5 percent. Despite the population growing by 2.5 percent in 2023, GDP on a per capita basis went into negative territory, down one percent over the 12 months.

“Birth rates provide insight into long-term population growth as well as the current confidence of Australian families,” said Mr Rawnsley. “We haven’t seen such a sharp drop in births in Australia since the period of economic stagflation in the 1970s, which coincided with the initial widespread adoption of the contraceptive pill.”

Mr Rawnsley said many Australian couples delayed starting a family while the pandemic played out in 2020. The number of births fell from 305,832 in 2019 to 294,369 in 2020. Then in 2021, strong employment and vast amounts of stimulus money, along with high household savings due to lockdowns, gave couples better financial means to have a baby. This led to a rebound in births.

However, the re-opening of the global economy in 2022 led to soaring inflation. By the start of 2023, the Australian consumer price index (CPI) had risen to its highest level since 1990 at 7.8 percent per annum. By that stage, the Reserve Bank had already commenced an aggressive rate-hiking strategy to fight inflation and had raised the cash rate every month between May and December 2022.

Five more rate hikes during 2023 put further pressure on couples with mortgages and put the brakes on family formation. “This combination of the pandemic and rapid economic changes explains the spike and subsequent sharp decline in birth rates we have observed over the past four years,” Mr Rawnsley said.

The impact of high costs of living on couples’ decision to have a baby is highlighted in births data for the capital cities. KPMG estimates there were 60,860 births in Sydney in 2023, down 8.6 percent from 2019. There were 56,270 births in Melbourne, down 7.3 percent. In Perth, there were 25,020 births, down 6 percent, while in Brisbane there were 30,250 births, down 4.3 percent. Canberra was the only capital city where there was no fall in the number of births in 2023 compared to 2019.

“CPI growth in Canberra has been slightly subdued compared to that in other major cities, and the economic outlook has remained strong,” Mr Rawnsley said. “This means families have not been hurting as much as those in other capital cities, and in turn, we’ve seen a stabilisation of births in the ACT.”

Economies Need Central Bank Digital Currencies More Than Bitcoin

According to a global banking watchdog.

Continued stagflation and cost of living pressures are causing couples to think twice about starting a family, new data has revealed, with long term impacts expected