Central Bank Digital Currencies: The Motivation

Abstract

A growing number of central banks are considering the issuance of central bank digital currencies (CBDCs). CBDCs for the general public (“retail CBDCs”) would constitute a central bank liability and a form of digital cash. To the public, they would be an alternative to central bank issued cash and private money, such as traditional bank deposits. The evolution of payments plays a pivotal role in developing CBDCs. Given the declining role of cash in some jurisdictions, CBDCs as a new form of central bank money may contribute to safeguarding trust in the public currency and improve financial inclusion outcomes. CBDCs have the potential to encourage competition and efficiency in an otherwise oligopolistic market for payment services, increasingly dominated by BigTechs, and increase overall resilience in payment markets of the future. Upon their introduction and depending on their exact design, CBDCs may have considerable consequences for policy makers and the general public. This chapter sets out four of the main motivations for issuing CBDCs, all while acknowledging considerable divergences across jurisdictions.