Central Bank Digital Currencies (CBDC’s) – Pro and Con
Central Bank Digital Currencies (CBDC’s) – Pro and Con by Larry White for LoneStar White House
This is a topic we have covered here for several years. First we had a variety of private sector forays into the world of creating cryptocurrencies with most of the early attention focused on Bitcoin and the related blockchain technology that came along with it. Over time all kinds of new currencies arose and the private sector dived head first into tying to figure out ways to utilize blockchain technology. This whole process has been going on now for some time and thus far we have not seen any of this lead to something that leads to broad public adoption of an alternative cryptocurrency to seriously challenge the existing national fiat currencies. Even a huge private sector initiative from Facebook (Libra) discovered that there are many regulatory challenges involved with trying to do something that the central banks prefer left in their domain.
It would not be accurate however to say that central banks have ignored all this furor. All around the world central banks started up studies and test pilot programs to see if they should look into both issuing their own version of a “digital currency” and also blockchain technology as well. This process has been very slow to unfold and at this time there are still no major western central banks expected to issue a central bank digital currency (CBDC) in the near future; although China may be closer than some others to giving it a try. We have covered all this here and have informed readers not to expect this kind of change to show up any time soon in any of the major western central banks.
There are many reasons why this is the case. Some are technological, others are political, and still others are just the tendency towards stasis that exists in our present monetary system. The public at large has not demanded this kind of major change and a large segment of the public likely would distrust it for one reason or another. So there is still no reason to think we will see this kind of change coming soon, especially at the Federal Reserve in the US.
In this article, we will feature two articles that look at this whole topic from a “pro and con” perspective. Central banks do have interest in exploring this further and do list some “pros” they can see for either “wholesale CBDC’s” (bank to bank) or “retail CBDC’s” (includes the general public having accounts at the central bank). But even the central banks continue to bring up some “cons” they say would have to be overcome. Of course central bank critics see lots of “cons” and not that many “pros”. Here we will provide links to two articles so that readers can explore this topic in depth if they want to.
First, we have this new Digital Monetary Institute journal from the OMFIF that talks about the status of China’s efforts to test the use of a new digital form of their currency and also how Asia in general has a number of projects underway. The OMFIF is generally pro central bank in its outlook. Here is an excerpt from the Introduction section (I added underline):
“Central bank digital currency activity is accelerating in Asia, where a range of digital payments and financial infrastructure projects is moving from desktop study to beta test implementation. This edition of the DMI Journal takes the region as its inspiration with accounts of digital projects from both private and public sectors, stretching from China to Manila via Bangkok and Singapore. We also highlight a pair of projects from Europe.