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Alasdair Macleod: Why central bank digital currencies may never happen

Section: Daily Dispatches

By Alasdair Macleod
GoldMoney, Toronto
Thursday, January 27, 2022

The Federal Reserve has just released its first public consultation paper on a dollar-based central bank digital currency. For many, central bank digital currencies (CBDCs) are a means of heading off private-sector cryptos, but coincidentally the prices of bitcoin and others have collapsed, losing half their value since early November.

The CBDC proposition is being sold to us by the central banks as keeping up with the times and taking advantage of the opportunities presented by new technologies to evolve payment systems.

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The Bank for International Settlements has been coordinating research into CBDCs, and this article gives a brief description of how the BIS and its committee members see them evolving. It is early, and there are several important issues yet to be tackled, such as whether CBDCs will pay interest and what will be the likely reaction of commercial banks to seeing central banks muscle in on their territory.

There are also two separate CBDC functions to consider. There is retail, whereby individuals have direct access to their central bank as counterparty, and a wholesale function for financial intermediaries for international settlement.

Whether CBDCs will come into existence is doubtful. 

To have credibility, their introduction will have to be coordinated at the G20 level, and they are unlikely to be widely issued before the end of the decade. That will probably be too late to save the world from a developing financial and monetary crisis that threatens to change everything. 

Furthermore, the Americans will need to be convinced that their dollar hegemony will not be compromised. And what will almost certainly stop it is the powerful U.S. banking lobby, likely to remind politicians presented with the necessary legislation that a political survivor is one who once bought, stays bought. ...

... For the remainder of the analysis:

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