Why CBDC spell out the ABC of payments
Central Bank Digital Currencies may not be everywhere (yet), but you could be forgiven for thinking they are. If you didn’t catch them in or on the morning news, you can hear about them in discussions and debates or read about them in position papers, staff papers, white papers and working papers. If you want to go deeper, go and learn about the tests, trials and taskforces that are underway, or swot up on them by listening to seminars and speeches. Blink and you really won’t miss them.
But our hunch is that for all that’s going on with CBDC, we ain’t seen nothing yet. And that’s because CBDCs require us to ask all those interesting questions about payments that we never thought to ask (but which you can read about in The Pay Off, the book).
If the payments system is a Public Good, should payment systems be operated as public utilities?
What is more important, our privacy or our security? Speed or certainty? Ubiquity or choice? Are all these irreconcilable?
What informs our payments preferences – history, geography, technology, or a bit of all three?
What's a digital identity, who's in charge of it and why don't (some of us) have one?
What level of surveillance are we happy with – and whose? If we’re happy for Amazon or Apple, Visa or PayPal to see everything we buy online, why not our central banks? Do we need banks? Do we need branches and if so, who should pay for them?
Is the world’s US dollar dependency desirable, affordable or even acceptable? Could a digital alternative from the other side of the world challenge it? Whose sovereignty do we want – and how much backing do we want our sovereigns to give (and to whom)?
If banks can’t give us a seamless, frictionless, borderless payments experience, why shouldn’t we throw in our lots with Alipay, Tencent or Libra (now Diem)? Or, for that matter, why shouldn’t central banks put their convening power to play and put all their backs to the wall with CBDCs?
Can the digital dream break down currency borders, or will it just result in new, digitised dams? Should credit subsidise payments, and if not who or what should – the taxpayer with their money, or the user with his/her privacy?
How many payment choices do we need? And do choices really mean redundancy – can you really spread payment risk around? Shouldn’t we instead put all our eggs in one basket and get someone to sit on it – and if so, who?
If cash goes, what money can we trust? Are crypto currencies and or stablecoins really serious contenders in payments … and, while we’re at it, do we actually need money at all?
With the sand dollar already busy on Bahamanian beaches and the e-CNY chugging along in Shenzhen, Suzhou and Chengdu, all these questions are ripe for asking – which is why answers you are starting to find a plenty. While in The Economist’s view “the new yuan will be a lot like the old yuan”, Niall Ferguson warns on Bloomberg that China’s e-CNY will challenge US (currency) supremacy if the dollar isn’t digitised.
What about the banks? Rarely backward when it comes to coming forward, the US banks aren’t taking chances on a new digital US dollar surprising them. Instead, they are already lined up and warning about CBDC through their advocacy body, the Bank Policy Institute. A CBDC publication from the BPI duly notes that “issuance of a CBDC would be a larger policy change for our society than practically any legislation in living memory”. If that weren’t enough to send tremors through US Congress, the BPI went on to critique a BIS publication which had carefully set out the tensions between different CBDC design choices and their relative benefits. Lashing out at this considered summary, the BPI snarled: “to those who have ever worked in business, where rising enthusiasm is not considered proof of concept, this discussion reads like a post mortem explanation for why a project was abandoned due to undue complexity and cost.” Ouch.
Anyone that has ever got involved in payment systems knows there are (undue) complexities, costs and trade-offs – central bankers as much as anybody. So don’t expect that enthusiasm to stop rising and, again, don’t expect to stop hearing about CBDC any time soon. If nothing else, the questions that CBDC raise are well worth asking.