CBDC: evolution, not revolution

Central Bank Digital Currency (CBDC) is attracting the attention of more and more people, it seems. Tech firms, banks, NGOs and consulting firms are gearing up to ride the next wave of innovation.

Nothing revolutionary

Earlier this year, 80% of the world's central banks had already started conceptualizing and delving into the potential of CBDCs, 40% were building proof-of-concepts, and 10% were implementing pilot projects, according to one. research by the Bank for International Settlements (BIS).

Central banks believe digital cash could be a useful addition to their tools, combining the security of central bank money with electronic convenience. Secure electronic money would certainly not be revolutionary.

For most of the Investors in advanced economies, good bank services with deposit insurance are available free of charge. Nonetheless, concerns have been raised that a new, safer and more affordable type of money could crowd out bank deposits and starve a credit economy in normal times, or it could plunge into a race to transfer savings into digital cash in the rich moment. of insecurities we are experiencing.

A practical and technical challenge

A CBDC would be a kind of digital banknote and, as such, could satisfy more use cases than the card while the issuer, being a central bank, could support liquidity, settlement purpose and confidence in the value of the currency.

As a result, it could promote payment diversity, help make cross-border payments faster and cheaper, promote financial inclusion, and even facilitate tax transfers in times of crisis, such as the current COVID-19 pandemic.

A CBDC would not be a revolution or an end in itself. On the contrary, it could be a way to obtain a more inclusive, accessible, safe and convenient form of money. Balancing these opportunities and risks is a significant practical and technical challenge.

An "oath" between the world powers

A recent report from the Bank for International Settlements (BIS) and the central banks of Canada, the euro area, Japan, Sweden, Switzerland, the United Kingdom and the United States sets out the principles and offers guidance on navigation in these uncharted waters.

It also proposes the equivalent of a Hippocratic oath - promising that any potential CBDC should not "hurt" central banks' monetary and financial stability mandates.

It also says a CBDC should integrate - not replace - cash and secure private money into a new monetary ecosystem that fuels innovation and private competition. This work is aimed at practical solutions rather than the conceptual research of recent years.

CBDCs will not usher in an era of prosperity or solve the social problems that plague us - this is beyond the scope of any currency. However, they could be a way to get a more inclusive, accessible, secure and affordable form of money. They could support a more diverse payment ecosystem, nationally and internationally and, if cleverly developed, provide a new form of global public good.