We have covered the concept of central bank digital currencies here on the blog for some time now. While it is clear that the idea is being looked at by many central banks, we are still waiting for the first central bank digital currency to arrive.
This article on the OMFIF web site explains how The Bank of Canada is researching the idea. It is clear that research is still in progress, that this project will not replace cash any time soon, and that various ideas on how to actually implement a central bank digital currency are being studied. Below are a few excerpts.
-----------------------------------------------------------------------------------------------------------"Digital currencies aren't new. Most money in advanced economies is already digital: a bank account balance is but a computerised entry in a ledger at a commercial bank. However, the digital money of the future could have very different characteristics from present forms.
. . . . .
It's no wonder that the possibilities of new digital currencies have sparked the interest of the private sector and the central banking community. The questions raised are of fundamental significance to the core functions of central banks because they have implications for monetary policy, financial stability, funds management and currency issuance.
Research-driven decisions: The Bank of Canada is approaching the subject from three angles: research, experimentation and co-operation. The bank has been investigating questions related to private and central bank digital currencies for some years, and is building a set of research papers. It aims to examine the underlying benefits and risks of digital currencies to the functioning of the economy, and for the central bank mandate.
. . . . .
Other research has highlighted the importance of making sure there is a need for the digital currency. If it simply provides another payment mechanism when cash is a viable alternative, there are circumstances under which the wellbeing of people could be reduced by its introduction.
Research on whether a central bank should issue a digital currency is still under way. The Bank of Canada has outlined a framework for analysis that highlights the importance of understanding the types of new economic activity that could be enabled. There are many considerations to be explored, not least who should have direct access to the central bank balance sheet and what this would imply for the transmission of monetary policy and financial stability."
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My added comments: This statement in the article above is one I find interesting:
"Other research has highlighted the importance of making sure there is a need for the digital currency. If it simply provides another payment mechanism when cash is a viable alternative, there are circumstances under which the well being of people could be reduced by its introduction."
It points out the fact that central banks already issue "digital currency" for the most part. Unless there is a compelling reason like significant cost savings or some advantage to the public that does not currently exist, it is fair to ask if just issuing a "central bank digital currency" based on "blockchain" is really needed. They go on to say that in some cases where cash is a viable alternative, the well being of the public could be reduced by introducing a central bank digital currency. This does not sound like a ringing endorsement of replacing cash with a blockchain based "central bank digital currency" to me.
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