Balz: Cash and digital payments need strong foundations
Burkhard Balz, Member of the Executive Board of the Deutsche Bundesbank, emphasized the need for central banks to actively shape the evolving cash and digital payment landscape. Speaking at the Banknote Conference in Washington DC, he highlighted the importance of resilience and public responsibility.
The monetary high-rise: cash as a staircase
Balz used the metaphor of a high-rise building, where digital payments are the elevators and cash is the staircase – fundamental and indispensable when things go wrong.
He noted three key trends: declining everyday use of cash at the point of sale, continued demand for cash as a store of value (the 'banknote paradox'), and increasing reliance on private digital payments.
While digital payments offer convenience and speed, they also bring greater concentration and fragility, with vulnerabilities like cyber risks and single points of failure.
Balz stressed that payment systems, like the Washington Monument, require solid foundations, continuous maintenance, and decisive public action to remain safe, inclusive, and resilient against shocks.
Strengthening cash, hardening digital payments
Central banks must actively counter the downward spiral of cash usage and reinforce payment systems.
Balz outlined five key actions: safeguarding access to cash through transparency and innovative distribution models; supporting continued acceptance of cash by engaging with merchants and communicating its value; modernizing central bank cash operations for efficiency and resilience; strengthening the resilience of digital payments through robust oversight, diversity of options, and offline capabilities; and providing a clear strategic framework for the future of cash and payments.
He cited the EU's Legal Tender of Cash Regulation as an example of concrete measures to safeguard access and acceptance, protecting freedom of choice and financial inclusion.
A balancing act against market forces
Balz clearly articulates the central bank's dilemma in a rapidly digitizing payment world, where efficiency often conflicts with resilience and inclusion.
While the 'staircase' analogy effectively highlights the enduring need for cash, the practical challenges of maintaining its infrastructure and acceptance against declining usage are immense.
The proposed digital euro, though a strategic move to extend public money into the digital realm, faces significant hurdles in public adoption and proving its necessity over existing private solutions.