Panetta believes that CBDC can be used a means of payment, although he is ‘unclear’ about its advantages when compared with the prevailing digital payment mechanisms offered by financial institutions.
Panetta, however, sees a great advantage in using CBDC when considering the costs of production, transportation, and disposal of fiat money. According to the sources cited by Panetta, the costs associated with handling fiat money is roughly equal to 0.5% of EU’s annual GDP or 50% (€76 billion) of EU’s annual budget. The estimated efficiency gains of using CBDC would be much higher, if the digital asset is powered by a distributed ledger technology platform.
Panetta also highlighted the advantages of using CBDC as a store of value. According to him, it would virtually cost nothing to hold CBDC digitally, but offers great advantages as the virtual currency would be free of credit and liquidity risks. Over a period of time, CBDC will be the most preferred means of wealth storage, and could even overtake bank deposits.
Panetta also brushed off concerns that the traditional financial system will be severely affected by the introduction of CBDC by a central bank. He does not buy the argument that a CBDC will squeeze the net interest margin (NIM) of a commercial bank. Instead, he emphasizes that CBDC could result in the innovation of the existing financial frameworks and force the markets towards a “narrow banking model”.
During his speech, Panetta raised two important issues surrounding the CBDC, namely traceability and privacy. He believes that it is a question for the entire society and not for central banks alone. A month before the Bank of England published two staff working papers on CBDCs. While the first analyzed the impact of CBDC on the economy, the second paper expressed concerns about a possible Net Interest Margin squeeze on traditional banks.