One area of potential change for the existing monetary system relates to the possibility of central banks moving towards the creation of so called central bank digital currencies (CBDC's) for their national currencies. We have watched this space because if central banks were to move in that direction it might indicate that a new global digital currency using the SDR at the IMF could arise as competition for the US dollar. The SDR is a logical choice for such a currency since it already is sanctioned for use globally by IMF member nations.
In addition to the above, there have been a lot of articles in various media written suggesting that a new digital global currency based on the SDR is near at hand from the IMF. We have worked hard here to follow that story as best we can. We have reported that although the IMF has talked about and studied this idea, we find no evidence that something like this is near at hand. Also, very credible sources have told us that while all kinds of studies about the potential use of a blockchain based global currency have been done, there is no movement so far towards this by the major central banks or the IMF at this time.
Now we have direct confirmation of what we have been reporting here from a new survey done by the Bank for International Settlements. The survey clearly shows that what we have reported here has been accurate and that our sources were well informed on the current status of this issue. Below I have pasted in the Conclusion section of the BIS survey article followed by a few comments. (I added the underlines below for emphasis)
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Conclusion
"Most central banks are conducting research into CBDC. Many are progressing from
conceptual work into experimentation and proofs-of-concept, including in
cooperation with other central banks. Nonetheless, motivations for issuing a CBDC
are largely idiosyncratic (eg falling availability of cash in a jurisdiction). This has meant
that only a limited number of central banks are proceeding to the pilot stage with
CBDCs, and even fewer see issuance of a CBDC as likely in the short or medium term.
At this stage, most central banks appear to have clarified the challenges of
launching a CBDC but they are not yet convinced that the benefits will outweigh the
costs. Those that do see clear benefits are predominantly from EME jurisdictions.
From survey responses, this seems to be because financial inclusion projects create a
clear mandate for central bank action, and a lack of current infrastructure limits the
disruption a CBDC could create while simultaneously encouraging the use of new
technology.
The trends identified in the survey are likely to continue. Different central banks
will continue to move at different speeds. This creates a potential risk for spillover
effects across borders (CPMI-MC (2018)). However, the evidence from this survey is
that central banks are proceeding cautiously, and also that they are collaborating and sharing the results of their work. Caution and collaboration will reduce the likelihood
of unintended consequences.
To meet the payment needs of the future, physical cash is unlikely to be the main
answer. Yet, most people will have to wait to use a CBDC. However, central banks are
working hard to make sure the wait is worth it."
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My added comments: Please note the underlined portions of the Conclusion quoted above. This new BIS survey confirms that what has been reported here is accurate. We have said here that unless we get a new major financial crisis (perhaps worse than the 2008 crisis), we should expect changes to the existing monetary system to move along gradually.
The most logical path towards some kind of new global reserve currency to replace the US dollar within the existing system would be for the major central banks to implement digital currencies for their own national currencies first. This would allow for the real world testing of new technology on a case by case basis. After the technology has been tested and proven to work, perhaps the IMF could then move towards using it for the SDR later on. (note: one expert told me he thinks there may actually a stronger case for a digital SDR than for central bank digital currencies).
However, at this time, global demand for use of the SDR to replace the US dollar is very limited. China and Russia have talked about this, but no serious movement towards that has taken place so far. I believe that a project to try and promote increased demand for using the private SDR as a unit of account and for invoicing in global trade would be a logical first step towards tying to increase global demand for using the concept of the SDR more broadly in the private sector. But this would still be outside the IMF and would not directly involve the use of the official SDR used at the IMF.
The BIS does mention that eventually we may see reduced demand for the use of physical cash and in fact in some nations this is already happening (Sweden is an example). However, this NYT article notes that even in Sweden officials are not sure this is the best path to take and that some are trying to slow the process down to keep cash in circulation.
Critics of the existing monetary system as run by the central banks view the removal of cash as a negative development for personal privacy in business transactions and most central bank studies on central bank digital currencies list this as one of the challenges for implementing a CBDC. The US Fed has shown no urgency in moving towards the removal of cash in the US.
There is no indication at this time that we are close to the so called "cashless society" we see discussed and debated, but we are slowly moving in that direction naturally as more and more people just use debit and credit cards to make payments.
What could speed up potential for change? It would probably take a severe crisis that challenged the stability of the existing monetary system. Otherwise, as the BIS survey reports, central banks do not feel any urgency to move rapidly towards change. We can expect that they will simply move forward gradually along they path they are on now in terms of looking at CBDC's unrelated to any new crisis.
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