CBDC: changing the geography of central bank money

Central bank money still cannot be used in international payments. But the transactions that are likely to benefit the most from central bank digital currencies (CBDCs) are international wholesale payments, including foreign exchange and securities trading. Ousmène Jacques Mandeng writes that central banks have today a historical opportunity to shape a new format of money.

 
Central bank digital currencies (CBDC) have seen a significant increase in interest. But what contribution are they expected to make and what concerns could delay or prevent their introduction? The innovation with CBDC is the adoption of digital tokens as a new format of money akin to a digital bearer instrument to enable peer-to-peer transactions irrespective of space and time. It would be the same euro, peso, rand or won only in another representation. The use case for CBDC is naturally strongest where central bank money plays a special role and where existing arrangements impose undue limitations. This is the case especially in international payments.

CBDCs may be as significant as the move from metallic coins to bank notes. The proliferation of modern bank notes during the second half of the nineteenth century amid dominance of gold and silver payments was spurred by the need of more flexible and less cumbersome payment mediums to meet new demands amid a rapidly globalising and industrialising economy. At the time, new technology—the steam-driven stamping press—was instrumental in allowing adoption of the gold standard as the basis for the new bank notes. CBDC rests on the same rationale of advancing new functionalities that help expand reach and utility of central bank money in an increasingly digital economy. Blockchain and other distributed ledger (DLT) platforms are now offering a scalable and secure technology to issue CBDC.

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Πηγή: blogs.lse.ac.uk