Followers of the Brookings Institute will have picked this up some time ago. It’s a lengthy but fascinating debate between some of the world’s top economists on the value of digital currencies to central banks.
The debate addresses an interesting question: how far does digitisation go in the currency space?
Better responses to demand shocks, reduced cash handling costs (down with ATMs!) and more scrutiny on how money is being spent (sorry, money launderers – no more cash exchanges behind the regulator’s back) all sounds lovely, but these things rely on reduced usage of cash as much as introducing a new, digital currency, and the implications of switching currencies aren’t small.
Using what hardware, for example, would digital cash payments be made? Should we validate the currency itself (the way we validate a £10 note by holding it up to the light) or the payer (more like the way you enter your pin when you pay by debit card)? In either system, how do we secure an invisible, intangible currency against theft? And transaction visibility is great, but how do we keep people’s privacy protected?
Then there’s the question of implementing them. “The UK will be closed this weekend while we cut over to the new e-pound”…I don’t think so. What’s more, not only is this a technological leap for a central bank, but the FinTech start-ups that have given birth to many of these technologies are, culturally speaking, about as far from the tweed jackets and ivory towers of the central bank economist as it’s possible to get. How to make the two gel effectively to deliver this?
As yet, there are no good answers to these questions (we’re working on it…). The economics of a Central Bank Digital Currency are, on balance, a win as long as we keep to the realms of “Central Bank” (issued) and “Digital Currency”. The real question comes around the choice of technology that could actually work for this and how you go about implementing such an enormous change to our financial system.
Researched by Ashley Hunter, Senior Consultant, MBA.