07725 160903
[DEC 2023]
Key Insights from this interview
- A review of the literature about CBDCs finds a wealth of interesting facts, figures and analyses, but the preponderance of policy notes over academic papers and the lack of data (thanks to lack of issuances) imparts a bias to abstract design issues over practical experience.
- Although every CBDC has some issues in common with every other CBDC – such as the impact on bank funding and the conduct of monetary policy and the possibility of disintermediation – every CBDC is also sui generis, in that every economy and financial economy is different.
- All CBDC designs assume commercial banks will persist but what form commercial bank money will take is driven less by current forms (Stablecoins and tokenised deposits) than the settlement needs of tokenised markets and the payments needs of consumers.
- The universal validity of current CBDC designs is inhibited by the limited applicability of general equilibrium modelling, the lack of empirical data from CBDCs in issue and a reliance on data from a small group of developed but atypical economies in North America and Europe.
- Although much of the work that has been done on CBDCs is too academic to be immediately useful to central banks pondering, say, how to encourage take-up by merchants and consumers, it anticipates issues which may arise later, such as illiquidity and cyber-attacks.
- It would be helpful to CBDC design if neutral third parties such as the BIS and the IMF intermediated data collection from countries that have issued or are planning to issue a CBDC because it could help solve questions such as the impact of CBDCs on the velocity of money.
- The most solid and practically useful of the theoretical work undertaken on CBDCs lies in the area of financial stability, where the differences between economies are not as large, and there is a consensus on ways in which sources of instability can be managed.
- The principal gap in knowledge about the impact of CBDCs on economies lies in the area of consumer behaviour, rather than banks or merchants, because take-up of existing CBDCs is low and studies of how consumers would react to and use a CBDC are not extant.
- The pioneers in CBDC issuance are already having a profound influence over the design of future CBDCs but no central bank can assume that issuing a CBDC is a one-off exercise: every CBDC must be revisited constantly and adapted to new information continuously.
A year and a half may have elapsed since the last central bank digital currency (CBDC) was issued. But the work at and by central banks, banks, supranational organisations and technology vendors has continued. The accompanying output of policy statements, academic papers, discussion documents and accounts of experiments is a vast but rich source of experience and information. Which is why a team at R3, a leading force in the digitisation of financial markets and a participant in multiple CBDC projects, embarked on a review of the literature that has accumulated about CBDCs. Dominic Hobson, co-founder of Future of Finance, spoke to Alisa DiCaprio, the Chief Economist at R3 who lead the investigation, about what the review unveiled about how CBDCs are being designed, issued and operated, and learned what CBDC designers everywhere still lack: a trove of empirical data about the impact of CBDCs on the behaviour of money, markets and especially consumers.
A full recording of the webinar is available on this page. A transcript of the interview, which follows the questions below, is also available if you click on “Read the Transcript.” If you click on any question you will be taken to the exact point in the recording where the question is asked and answered.
How would you characterise the current state of play in CBDCs around the world?
Has practice uncovered shortcomings in the theory of CBDCs?
Is all the theorising about CBDCs making it harder to achieve CBDCs in practice?
Is it possible to discern instances where a CBDC project is bound to fail?