Sunday, May 13, 2018

Warren Coats - Free Banking in the Digital Age

Discussion of digital currencies is all the rage these days. Central banks are studying the idea of issuing central bank digital currencies. The former head of the SDR Division at the IMF (Dr. Warren Coats) has followed all this and offers his thoughts on what might be a viable option for the future in this new blog post. Below are a couple of excerpts.


Dr. Coats

"A number of central banks are considering issuing digital currency either in place of the paper currency they now issue or in parallel with it.  The advantages of central bank digital currency (CBDC) over paper currency for the issuer is the much lower cost of supplying and maintaining the currency (printing, storing, transporting, safekeeping and replacing old and damaged notes). For the users, there are the benefits of much greater speed and lower cost of making payments of currency across distances.  The use of paper currency (cash) in economies with proliferating electronic means of payment (Visa, PayPal, Zella, popmoney, etc.) has been and will continue to fall.  In addition, digital currencies can and do extend digital payment services to the unbanked.  This note explores some of the policy issues raised by CBDC, by which I mean digital claims on the currency issued by the official monetary authority, whether directly or indirectly."

. . . .  

"Should central bank digital currency be provided retail or wholesale?  A central bank could issue its digital currency to anyone who signed up (registered, i.e. opened an account directly with the central bank). As all uses of this digital currency would be between participants in the system, transfer would be simple and instantaneous.  It would be essentially the same as logging into your current bank account and transferring money to another depositor in the same bank.

In addition to the above advantages of speed and simplicity, this central bank retail approach carries the burden of an enormous expansion of central bank staff to interface with the general public in establishing and managing this new digital currency. Equally troublesome is the likelihood, if not certainty of a “digital run” from bank deposits to the central bank’s digital currency.  . . . . .

. . . .


My conclusion from the above considerations is that . . . . .

Added note: Regarding this question raised in the article:
Should central bank digital currency be provided retail or wholesale?
Retail would mean allowing individual private citizens to open a direct account with their central bank to hold the central bank digital currency. Wholesale would mean only large financial institutions would be able to have such an account.


  1. Not unlike the slow but intentional progression to single-payer healthcare (government), it will supplant local and state control with national control. When competition is eliminated, negative interest rates will be forced upon all to help support the deteriorating debt-based money and fiscal policy. If the money doesn't have confidence of its users, it doesn't matter if it is paper or digital.

  2. 100% reserve requirement of the Chicago Plan that he speaks about would make loans for business expansion and home construction very hard to get.