Central bank digital currencies (CBDCs) are not worth the work and resources required to implement them, says former senior advisor to the Bank of England.
In a Financial Times article published today by Professor Tony Yates, several reasons were given why CBDCs were not the answer, at the same time as central banks around the world are pushing forward with exactly these same digital asset projects.
China has already launched its central bank digital currency (CBDC) in several cities and even made it available for use during the Winter Olympics. Other central banks, including the Bank of England, are also considering the implementation of CBDCs.
However, the former professor of economics and senior adviser at the Bank of England argues that this is not a path that central banks should be going down.
A CBDC is essentially the digital equivalent of cash, and almost every country already has an electronic version of their currency in the form of “electronic or central bank reserves”. These reserves are digital entries in a central bank’s ledger that are lent to or borrowed from retail banks, which serve individual customers.
By introducing CBDCs, central banks would be making these reserves more widely available to non-bank intermediaries, households, and companies, raising questions about who should have access to them.
Some argue that CBDCs are the future, while others believe that central banks that don’t implement them will lose out in global currency usage. However, the writer argues that these motivations are suspect, and that the race for a dominant global currency is already won by the dollar.
Additionally, the writer argues that CBDCs are not a good solution for addressing the threat of cryptocurrencies like Bitcoin. They argue that cryptocurrencies are not good candidates for money, as they don’t have money supplies managed by humans to generate steady paths for inflation and are expensive and time-consuming to use in transactions. They can also be dealt with through laws and regulations, without the need for a new competitor asset from the central bank.
Some advocates argue that CBDCs can improve financial inclusion, but the writer argues that the most practical way of achieving this – contracting out to banks to provide app-based access – comes with familiar issues such as the need for an association with banks and IT literacy.
They also argue that the most compelling arguments for CBDCs are about payments and settlement efficiency, but these arguments are not clear enough to justify the significant undertaking and resources required to build and maintain a new payments system.
In conclusion, while CBDCs may have some advantages, such as allowing for interest on accounts and sharpening the transmission of monetary policy into the economy, the writer argues that these advantages are not worth the significant undertaking and resources required to implement them.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
