CBDCs: An Idea Whose Time Has Come?

CBDCs: An Idea Whose Time Has Come?

(Raphael Auer)

In 1987, Nobel laureate James Tobin proposed the concept of a . The idea was that central banks should create a public payments “medium with the convenience of deposits and the safety of currency.”

It was a novel idea, which is only recently being taken seriously. Public officials first warmed to it in response to declining cash use in some countries. One early example is Sveriges Riksbank Deputy Governor Cecilia Skingsley, who said in “the Riksbank should carefully consider meeting the general public’s need for central bank money by supplying this in some electronic form.”

Spurred into action also by the popularity of and announcements of stablecoin projects such as (now Diem), many more central bankers have joined since. And certainly, the has added an extra fillip to this debate.

As a consequence, research and development of CBDCs is now taking place around the world. In recent research we have built a . As of end of November 2020, 46 monetary authorities are researching and developing wholesale or retail CBDC (see Figure 1).

Looking just at retail CBDC schemes, four pilots are underway: at the People’s Bank of China, the Eastern Caribbean Central Bank, the Bank of Korea and Sveriges Riksbank. One CBDC project – the Sand Dollar in the Bahamas – is already live.

First, the stance of policy makers towards CBDCs continued to improve throughout 2020 – as highlighted by the increasingly positive tone of central bank speeches (see Figure 2). One cannot overstate just how remarkable this shift of opinion is.

As late as mid-2018, the net stance on issuance of CBDC had been deeply in negative territory (see Figure 2); a March 2018 joint report by the argued that any “steps towards the possible launch of a CBDC should be subject to careful and thorough consideration.”

Underlying this, one reason for this shift of opinion is that policy makers are now more convinced that CBDCs can be issued without adverse side effects on commercial banks. In fact, in October, laid out a kind of Hippocratic oath for CBDC issuance – is the premise, and CBDCs are hence seen as .

While the debate on how exactly this can be assured is still ongoing, viable proposals have emerged (see one proposal by Ulrich Bindseil ). On the operational side, it is now evident that . Thanks to these new perspectives, there is a growing possibility that CBDCs will be part of the future monetary landscape.

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