The UK Govt have issued a consultation on how to implement a Central Bank Digital Currency.
The first thing I ask myself, is what is it. An EU blog article, says, “Central Bank Digital Currency (CBDC) is a new form of money that exists only in digital form. Instead of printing money, the central bank issues widely accessible digital coins so that digital transactions and transfers become simple.” I would suggest that money in a bank account already has these properties.
The Bank of England seem to be very keen. In an article, called, “ Why? “ by John Cunliffe of the Bank, he says, “This private money i.e. bank deposits, is not a claim on the state or backed with the resources of the state. It is not covered by that familiar Bank of England promise to ‘pay the bearer’.” It is then proposed that the Bank of England create a digital currency to provide this security.
There are several major problems with this line of thought. I suspect that the vast majority of bank account holders will dispute the fact that their money is worth less because its not in cash. Most people worked for that money, and if paid in cash do not accept that the act of depositing in a bank devalues it. This suggestion that money in the bank is less safe than cash is dangerous politics and dangerous economics and needs to be opposed. Money needs to be trusted.
While the Bank’s papers talk about cash and bank (i.e. lender) made money, a CBDC would be intended to replace cash as the demand for it decreases, but I ask how does a CBDC replace a private sector bank account? At the centre of the monetary policy value proposition for CBDC is the fiction that money in a bank is less safe than cash because of the government promise to ‘pay the bearer’.
This is much more acute today than when I started to write this article as the collapse of Credit Suisse shows. The issue of bank failure is serious and in the UK the primary defence is not the Bank’s promise on the bank note, but the Financial Services Deposit Guarantee System., which is capped provided the deposit taker is licensed by the PRA.
The consultation paper suggests that not having a CBDC inhibits innovation, but like accountancy, and medicine, I am not sure we want innovative financial services, just as ENRON showed we don’t…