This year, pandemic and all, central bank digital currencies (CBDC) got their 15 minutes of fame. In 2019, to the possibility of serious private competition. And although libra, , remains a paper tiger, it’s not difficult to imagine other Big Tech firms joining the pack. Central banks had to up their monetary game – and so they did.
The end of this strange year is a good time to look at the state of play on CBDCs and revisit some fundamental questions, starting with the most basic: What is a CBDC? With so many out there, it’s become harder (not easier) to understand what CBDC means. Here is a good starting point: . You own or hold something that was directly issued by the central bank, not by an intermediary.
If your money doesn’t appear in the central bank’s balance sheet as a liability, it’s not a CBDC. As a result, when we hear about indirect or two-tiered or synthetic CBDCs, chances are that we’re not looking at the real thing. That doesn’t mean these models are irrelevant, it just means they are promoting something different from CBDCs.
In fact, most of these models were designed with one goal in mind: preventing CBDCs from being a radical departure from the current system. The major concern of central banks is that people would easily move from bank deposits to CBDCs during crises, increasing financial risk and disintermediating banks at the worst possible time.