Monetary Authority of Singapore’s managing director, Ravi Menon, raised doubts about the potential impact and effectiveness of central banks as creditors should they decide to issue their own digital currencies.
Menon noted that whilst there are real economic benefits from embracing electronic payments of fiat currencies, such as reduced transaction costs and greater convenience, it remains unclear what issues are being addressed through the issuance of digital currencies. In fact, Menon underlines a critical doubt raised from the issuance of digital currencies by central banks, namely the workings of a credit transmission mechanism not dependent on conventional commercial banks.
«Today, we keep a tiny amount of cash with us and the rest of it is placed with the banks. The banks lend that money to finance economic growth,» Menon said in a «Business Times» (behind paywall) report.
«If most of our money were to be held with the central bank, then the credit allocation function falls on central banks. Central banks are not equipped to do that.»
Digital Currency Campaign
MAS’s Menon has recently gone on the offensive against digital currencies, voicing skepticism not only about those issued by central banks but even Facebook’s Libra which has proposed a peg against a basket of currencies including the Singapore dollar, U.S. dollar and euro.
Menon agreed that the potential emergence of Facebook’s Libra demonstrates the need to tackle challenges including cross-border payments and financial inclusion – about 1.7 billion, or nearly one-third of adults, are unbanked or lack an account with a financial institution, according to the World Bank.
«Do we need a Facebook kind of solution outside of the banking system in order to solve this problem?» Menon said in a «Bloomberg» report. «I’m not so sure.»
