Central Bank Digital Currencies Would Have Winners and Losers

For every public policy, there are private interests that are helped or harmed. Central bank digital currencies seem to fall into that pattern. A central bank digital currency would hurt credit unions, a credit union trade group says. Others point out that CBDCs would help protect private banks from disintermediation. 

Central bank digital currencies are a digital form of central bank money that is widely available to the general public. A CBDC would differ from existing digital money available to the general public because a CBDC would be a liability of the Federal Reserve, not of a commercial bank.

source: Reserve Bank of Australia 

Unlike many other cryptocurrencies, CBDC tokens would be tied to a nation’s fiat currency. Some may dislike it for that reason: some cryptocurrency supporters value crypto precisely because it is not a centralized form of money and does not require clearing through the established banking s

Central bank digital currency is traditional money in digital form, issued and governed by a country’s central bank. It therefore would be influenced in supply and value by a country’s monetary policies, trade surpluses, and central bank.

Central bank digital currency is not “cryptocurrency” such as Bitcoin, governed by distributed autonomous communities. To a degree, CBDC value might not fluctuate as much as crypto does, as “value” has an external reference. 

CBDCs are supported by central banks because it preserves the role of central bank money. But even central bankers acknowledge pros and cons. 

CBDC offers the public broad access to digital money that is free from credit and liquidity risk. Also, CBDCs could reduce common barriers to financial inclusion and enable lower transaction costs helping low-income and underbanked individuals.

CBDC has the potential to streamline cross-border payments. 

But from a central banker perspective, CBDCs could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank, altering the supply of reserves in the banking system, and affecting monetary policy implementation.

That very attribute, though, is seen by some as an advantage of rival cryptocurrencies. 

As always, there are issues of privacy and transparency needed to ensure lawful use of money. 

From a central bank perspective, CBDCs are necessary to protect the integrity of the monetary system. In essence, CDDCs would be a form of “stablecoins," tokens whose value is pegged to some national currency.