On the Coming of Retail CBDCs: Public versus Private Money

Abstract

Central banks around the world are considering whether they should issue central bank digital currencies (CBDCs). Many are doing this mainly to become familiar with the problems involved, should other central banks decide to issue them. Some, including the European Central Bank (ECB) and the People’s Bank of China seem more intent on issuing them. Wholesale CBDCs, which would not be available to the general public, pose relatively few problems and could bring identifiable benefits to the international payment system. Retail CBDCs, available to the general public are more controversial. Their advantages to consumers are unclear and the dangers they could bring to financial stability through disintermediation of the commercial banks are obvious. There are solid systemic arguments in favor of CBDCs as a form of public money and as a public interest based counter weight to profit oriented private payment providers, but many of the other advantages touted for CBDCs turn out to be either make weight or contradictory, whereas the danger of disintermediation seems much more real. The central banks believe they can deal with these problems through clever design. But on closer examination, the solution proposed for one problem often comes at the expense of making it more difficult, if not impossible, to achieve one of the other goals. While the central banks have so far devoted a great deal of time and attention to questions of high level policy and technical design, they appear to be just now turning to developing the value proposition for users. The most recent research on public acceptance of CBDCs carried out for the ECB indicates they have quite a long way to go to convince the public and other stakeholders of the advantages of what they are proposing. To the extent they will need legislative action to implement their projects, for example to achieve legal tender status for their CBDCs, a lack of public demand may hinder or at least slow their adoption.