Central bank digital currencies: what do they offer?
In order to assess the impact of the pandemic that has hit Italy since the start of 2020, I think we should look at the careful analysis made by the National Commission for Listed Companies and the Stock Exchange (Consob) in its report. over the year 2020.
2020 has been one of the worst years for Italy in economic and social terms since the end of World War II. After experiencing a significant drop in its GDP, the country has been heading towards economic recovery since the second half of the year and, more clearly, in the first months of 2021, and is showing its own willingness to tackle unresolved issues, by also taking advantage of the EU’s change in attitude to fiscal policy, which is a necessary foundation for cohesion between Member States.
The 2020 results confirmed the assessment that savings and exports are the two pillars of the country’s economic and social strength. The protection of savings by public institutions obeys rules that have been tested and perfected over time. Nevertheless, they must be updated in the light of technological innovations in the financial field. However, the strongest protection remains its anchoring in real activity, the progress of which is shaped in Italy by export performance. On the other hand, private consumption and public spending show that they do not have the dynamics that they have in other major world economies.
One of the few positive aspects that emerges from the report is that the savings rate of Italian households in relation to their disposable income increased by 50% in 2020. Excluding savings invested in listed companies, its return remained rather low, close to zero.
Considering the amount of financial assets held by Italian households, each point of return can be estimated at around 30 billion euros, or almost 2% of GDP, the size of a good public budget plan and a maneuver. budget of the past.
Taking into account management costs, savings have largely contributed to maintaining market stability, but without producing real growth, although this effect is now the result of a crisis that arose for specific and contingent reasons.
Exports have struggled, declining in volume by about one-seventh from 2019, due to the concomitant effect of declining global demand and quarantine-related obstacles to domestic production.
Imports fell more sharply, allowing Italy’s current account balance to remain positive and to grow slightly relative to GDP.
In 2020, Italy’s international investment position improved further, posting a surplus for the first time in three decades. The international financial center has only partially recorded and recognized this favorable structural position of the country.
In the first quarter of 2021, world trade reached higher levels than before the crisis and Italian exports continued to grow at double their pace, confirming the resilience and dynamism of Italian companies in the sector, a traditional cornerstone of our economy.
The balance of the financial account with abroad, which had recorded a slightly negative balance in 2020, also turned positive, confirming the role of Italian savings as a pillar of stability – another strong point of Italy.
Confidence in the responsiveness of the Italian economy has increased, as evidenced by the significant reduction in the gap between construction and construction. Bund interest rate. It is also the result of the decisions taken by the ECB to buy large quantities of government bonds and by the European Commission to suspend – even temporarily – the Stability Pact and to launch the Next Generation EU Plan (NgEU) .
The report under review, however, indicates that for the recovery phase to continue, we need to complement and supplement the decisions taken so far to increase companies’ venture capital to improve their financial leverage and make them more willing to undertake new initiatives.
This phase offers an important opportunity for the tax reform advocated for some time and reaffirmed as part of the National Recovery and Resilience Plan (NRRP) implementing the EU Next Generation Plan.
State intervention for social purposes has reached unusual forms and levels, without reducing citizens’ pressure on public resources. This is not surprising because the rational content of human action leads to choosing to obtain the best result at the lowest cost.
Private companies, especially exporters, have been forced by competition to solve their problems without delay, in order to avoid being excluded from the market. Their ability to do so is a cornerstone of growth and a basis for the proper functioning of the democratic system, which has the power to correct the distribution of income determined by productive and commutative activity through regulations, taxes and of direct debits.
Conversely, when these forms are insufficient and savings are not used by individuals, the State resorts to indebtedness, but not always after a well-founded assessment of the intergenerational redistributive effects.
In this regard, the report insists on the fact that – on the basis of the standard provided by the laws in force – it is no longer possible to distinguish – with technical and legal certainty – what currently consists of money and financial products – interdependent content due to the connection provided by conversion platforms between virtual and traditional instruments.
The market uses a different criterion from that of the existing legislation, which must be incorporated and integrated into it. The activity in transferable securities, transferable securities and forms which is carried out in the field of financial information also interferes more and more with international relations and geopolitical balances, whose stability plays an important role for the exchanges with the currency and nominal funds, in particular because of the growing weight they have in a political scenario that no longer matches the peace and prosperity acquired during the last thirty years of integration and cooperation between the states.
However, the will expressed in various fora by government authorities to seize the opportunities opened up by technological innovations in the movement and management of capital should not be seen as an acquiescence in the loss of market transparency, but as a desire to recover it using the same financial innovations.
Therefore, the favorable attitude towards new techniques must be accompanied by clear rules on the emergence and exchange of crypto instruments and their interweaving with traditional monetary and financial assets / liabilities, whether they are already digitized or no, as an essential guide for operators managing liquidity and savings. .
The spread of virtual instruments has led to the emergence of “technological platforms” providing faster and cheaper access to payment and securities trading services than those offered by banks and other intermediaries and brokers.
However, we must be careful, because the custody and exchange functions that they initially performed have evolved to adapt to increasingly articulated and complex transactions, including the granting of credits guaranteed by its own virtual instruments. or those of others, or the conclusion of derivative contracts using cryptocurrencies. (Altcoin, Crypto Token, Stabe Coin, Bitcoin, INNBC, etc.) as a guarantee, even for several transactions of the same type.
These new market segments are changing rapidly and there seems to be a dangerous repetition of the experience before the 2008 crisis, when derivative contracts grew to ten times the size of global GDP.
Although with the necessary distinctions, it is likely that something similar will happen in the market for virtual money and financial products, especially crypto products.
The use of these instruments in closed forms outside the participants in the initiative (without permission) excludes private control (such as that exercised by auditors’ committees and certification bodies) or public control (by control authorities). Without adequate safeguards (rules and bodies), the result is a deterioration in market transparency, the basis of legality and rational choices by operators.
Well-known negative effects include the protection these techniques afford to criminal activities, such as tax evasion, money laundering, terrorist financing and kidnapping. The recently observed concentration of cryptocurrency ownership may reflect this aspect of the problem.
For Italy, the problem raised has particular connotations compared to other countries due to the existence of a constitutional provision which attributes to the Republic the mission of encouraging and protecting savings in all its forms. , as well as the mission of regulating, coordinating and controlling the exercise and exploitation of credit.
It would be inappropriate and inappropriate to attribute to the specific expression “savings in all its forms” and to the credit to be protected a connotation which would also encompass virtual instruments, without going through specific regulations.
If this were to happen, the responsibility for the consequences suffered by savers could fall on the state, as has happened in the past, due to the secret or open legitimization of their existence and the awareness that through financial innovations, market manipulation and the consequences the ruin of savers can be achieved.
Therefore, the existence and functioning of a security system – even left to individuals – must be guaranteed and supervised by the State, which must however keep in mind that the dissemination of digital techniques in finance poses requirements. and specific needs that must be addressed globally, otherwise its effectiveness will be reduced.
The legitimization of the existence of “virtual savings”, in various forms, is now a reality that combines savings generated in a traditional way, that is to say without spending part of the income produced by work. or capital.
We are facing radical changes which must be tackled with full awareness of their content and urgency in order to avoid negative consequences on the micro and macro-systemic stability of the securities market and, thus, on the market. savings and economic growth needed to protect them and use them properly.
A mandatory step is to reaffirm that the legal validity of contracts is guaranteed only by their denomination in sovereign currency. If – as appears to be the case – we intend to recognize the existence of private currencies, users must specify in a specific contractual clause that they are aware of the risks they run by using non-public currencies.