* Logistics: if you have poor infrastructure and remote communities, you eventually have to send armoured trucks full of notes and coins to replenish those lost to attrition or external trade. It seems a bit easier and less risky just to let people query the central bank from a satellite-based hotspot.
* Universal access: Modern payment systems tend to be for the (relatively) well-off. Commercial banks aren't going to be interested in handing out debit cards and maintaining accounts for people with an average balance of only a few dollar-equivalents. A state program can afford to operate at a loss (and may actually deliver cost savings if it can be used as a cheap way to disburse subsidy or welfare payments)
For #2, what is the actual technical hurdle to more widespread distribution? I saw an idea that every citizen should just automatically have a checking account at their regional Fed. Why not that? It does not seem technically infeasible, and the fed could then do distribution by debiting their own accounts.
I'd like to know more about the technical implementation.
For society, this is really important. Basically everyone needs a bank account. In some countries, the government even forces people implicitly to have one in order to pay taxes or fees.
In such a case, the government should provide a solution for this too.
Then, there are also economic implications of this. Society needs to run many banks, which uses a lot of resources (especially people). However, many people and companies only need one simple part of banking: cashless payment. Something that’s, from a technical perspective, just a database for transactions and accounts. So a default solution by the government makes sense to me.
Of course people will argue against this as the government would have full control over people’s money. But I think that’s the case anyway. Money is something inherently governmental as it’s produced by an governmental institution (central bank) and collected by the government in form of taxes.
But why couldn't the government just keep cash on hand in some central location (eg. Fort Knox in USA) and in case of a total system failure have a plan to quickly distribute it across the country. I mean if Amazon can get me socks in 48 hours, I'm pretty sure the govt of nearly any 1st world country could get cash to central repositories in a matter of hours with enough planning.
It's worth noting that most central banks already do have electronic money (called 'central bank reserves'), which commercial banks use for settling inter-bank payments between each other, as well as transfers to and from the Government (Government spending into private bank accounts, tax transfers to the Government from private bank accounts, and the purchasing of Government bonds and securities).
What the linked paper is talking about (it's also part of the Swiss proposal) is to provide accounts for private individuals (not just banks and large financial institutions) to access this kind of money. The advantage is zero risk of losing your money (unlike commercial banks it wouldn't require the Government having to bail anyone out or insure anything), but the downside is reserves don't attract any interest.
it would also be pretty beneficial for consumers. Cutting every payment middleman out and having one consistent means of exchange across an entire currency zone would be great.
Settle everything instantly, no charges, no withdrawal fees converting between cash and digital. The cost of running the system are probably minimal compared to what the entire consumer-banking sector collects.
I think you're totally missing the point. With CBDCs the state will be solely able to control who has access to the monetary system and you're not able to escape without physical notes. There is also so much potential for misuse (e.g. social credit system). CBDCs are in my opinion, one big step towards dystopia.
I still fail to see how a new digital currency makes this easier compared to just modernizing the US payment infrastructure or letting the central bank provide retail banking services in our current currencies.
Giving each citizen an account at the central bank. Then everyone will have access to "real" money digitally (not only via cash, which is currently the case).
The problem with electronic cash is the dependence on internet and electricity. That's a very complicated foundation to build your society on. At a minimum you would need to provide free internet access to banking apps and free access to banking devices for it to be a solution for literally every citizen.
#1 because the only way regular people can hold central bank money (as distinct from retail bank liabilities) is cash. And cash isn't convenient for most transactions.
#2 Yes, most money is digital. But most of that money is NOT central bank money. Imagine you 'have' $500k in the form of digital money. How much of that will you still have if your bank goes bust?
#3 Yes, this can be solved in a different way (as it has been in the UK).
#4 Regular banking and online payments are built on legacy payment rails. Transactions between customers of different banks are slow or expensive or both.
A CDBC does not need to use distributed ledger technology. Depending on your objectives, it could be 'just a database'. But that's the point: people are still trying to work out what those objectives are. Perhaps privacy and anonymity is an objective. Perhaps the opposite (all transactions can be tracked back to an individual) is an objective. Those objectives (and competitive forces) will determine how a CDBC is implemented.
"the entity involved is already literally the arbitrator and source of truth of how much currency exists"
Yes, but it might simultaneously want to increase transparency. How do you know the central bank is truthfully reporting M1? Could a distributed ledger help?
fyi, central bank digital currencies are generally proposed as an anonymous system of digitally-native currency that means you would not have to use a bank/paypal/etc. to conduct transactions online
it's a way of central banks taking back control of the currency system from mastercard/paypal/yourbank/etc.
there should be no reason we need banks to conduct basic tasks which are increasingly digital only.
irrc, proposals do not include any mechanism to reliably associated transactions over time with an individual's identity.
if implemented it would increase privacy, as it would deprive banks/online middlement/etc. from having your transaction hisotry
which is usually trivially accessible by law enforcement anyway
> This second mode of money is essentially private, running off an infrastructure collectively controlled by profit-seeking commercial banks and a host of private payment intermediaries – like Visa and Mastercard – that work with them. The data inscriptions in your bank account are not state money.
This raises a question in my mind which probably shows my ignorance of finance more than anything, but here goes:
Why not just have a public system of electronic transactions?
What I mean is, the current system of electronic transactions feels to me a lot like the way things were back in Ye Olden Days with cash. Cash didn't start out as state money, it started out as private money -- notes issued by individual banks, promising to pay the recipient in coin or specie on behalf of the bearer. (Which is why paper money is still referred to in some places as "bank notes.")
Which was fine for a long time, but as commerce got bigger and more widely distributed, it reached a point where it didn't scale anymore. Every note was only as dependable as the bank it was drawn on, and the farther away the transaction was from that bank the harder that reliability was to evaluate -- uncertainty which added risk to transactions. So governments started removing that uncertainty by organizing central banks and issuing their own notes, which became the paper currency we all know today.
Fast forward to now. We have modern cash, which has all the virtues the article cites; and we have a separate system of online payments which lacks those virtues, run by private companies who take a non-trivial piece of every transaction for themselves. Those drawbacks weren't too important when electronic payments were a new thing, because it wasn't clear then that they would ever be more than a niche product for the convenience of rich people. But now they're everywhere, and it seems inevitable that at some point they'll become the universal method of payment.
So why not do like we did with bank notes and cut out the middleman? Why not have electronic payments systems operated by governments, in the same way that they print currency? It seems like it could solve a lot the of problems with a cashless society at a stroke, and help the economy to boot by returning the percentage of each transaction that used to go to the banks back to productive circulation.
(The cynical part of me says that the reason is because the middlemen in this case are banks, and in the modern world banks tell governments what to do rather than the other way around.)
What I believe the BOE is exploring is for each citizen to have an account with the BOE and the potential for the types of money that can be used in this parallel banking system.
If we think of the financial system as plumbing, the central bank has direct pipes to banks but rarely to citizens. This is not usually a problem except when you need to do a big emergency stimulus push not having direct pipes to individuals means stimulus takes a long time to reach individuals (if it does at all). Even countries like the USA and UK had a challenge rolling out stimulus, so this is a mechanism to bypass traditional banking system in a crisis.
Thats just the banking aspect, the interesting stuff is what you can do with the type of money issued. For example you can build inflation into the currency, to encourage the user to spend it. Or it can be tied to carbon credits as a way to encourage the purchase of environmentally friendly products. I am not saying this is what is going to happen, only that a digital currency directly issued by a central bank has the potential to be used in ways that is not readily possible right now.
This is a reminder that the economy needs a reliable store of value. A CBDC (i.e. everybody gets an account at the central bank) would make sense for this. Ironically, when introduced it might cause bank runs or other stresses for banks though.
why is it useful? you can store and instantly send any arbitrary amount of money anywhere on the planet and it is the hardest (impossible?) for a government to steal it from you
I don't think we'll agree, but I would respond with this in conclusion.
1) Even assuming they get all bank data (which can be assumed, but is uncertain) they don't get access to physical cash data, which might also be phased out in the event of a national digital currency.
2) Nothing about your comment addresses my concern about government power.
Exactly, its the price we pay for the currency network, which is incidentally much less than what we pay now to commercial banks for using their payment network (spoiler: that money does not help the less fortunate of the world either)
The explanation of a digital currency, when you get past the paranoia about tracking you[1], sounds exactly like a "narrow bank". But the Fed has always been against those, because they think customer banks will be too poorly capitalized if everyone uses a government bank directly. That seems like the best reason we wouldn't get one.
A good reason to have them would be that it'd be really easy for the government to pay you, for instance if we had a UBI or one of those things everyone on here loves. Right now they're surprisingly bad at it. A lot of government agencies have to pay people with prepaid debit cards, and there's people who never got their stimulus checks still.
[1] mainly unjustified because they're already tracking you in regular bank accounts so it can't even be any worse…
* Logistics: if you have poor infrastructure and remote communities, you eventually have to send armoured trucks full of notes and coins to replenish those lost to attrition or external trade. It seems a bit easier and less risky just to let people query the central bank from a satellite-based hotspot.
* Universal access: Modern payment systems tend to be for the (relatively) well-off. Commercial banks aren't going to be interested in handing out debit cards and maintaining accounts for people with an average balance of only a few dollar-equivalents. A state program can afford to operate at a loss (and may actually deliver cost savings if it can be used as a cheap way to disburse subsidy or welfare payments)
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