Last week, Currency Research held its inaugural Digital Currency Conference in Washington, D.C. The event brought together experts, policymakers, technologists, central bankers, and stakeholders to discuss the future of digital currencies––namely, central bank digital currencies (CBDCs). It covered everything from quantum computing to the digital divide in payments.
While the event led to too many discussions to list in one sitting, here are three of the key takeaways that seemed to echo throughout the day.
A CBDC Is a Solution in Search of a Problem
The most pressing question of all was whether a CBDC was a “shiny new toy” for central bankers or the next great step forward in the history of money. It’s certainly might be a “step in history,” but the current outlook for CBDCs is far from great.
Douglas Elliott and Larissa de Lima at Oliver Wyman addressed the issue well last summer when they detailed six policy mistakes that need to be avoided when crafting CBDCs. One of the most important mistakes they describe might be the mistake of ignoring the other policy tools that are on the table. Luckily, some policymakers appear to be taking note of this warning. For example, Philip Lowe, Governor of the Reserve Bank of Australia (RBA), recently said, “The RBA is open to [the possibility of a CBDC]. To date, though, we have not seen a strong public policy case to move in this direction, especially given Australia’s efficient, fast, and convenient electronic payments system.”
The U.S. payments system is years behind that in Australia, but even here, a CBDC is not a unique solution. Not only has the private sector made great strides in speeding up payments, but the Fed itself is expected to launch a new service (FedNow) in 2023 specifically to update the payments system.
And much like with the payments system, the other issues a CBDC is purported to fix are all being addressed through more-targeted, private-sector endeavors. It’s just not clear what unique issue a CBDC will solve in practice, and how that solution would justify reinventing the dollar. And if that question can’t be answered, the United States would be better off renouncing plans to launch a CBDC.
Read the rest of this post →