Central Bank Digital Currency: The Battle For the Soul of the Financial System
— July 8, 2021
By Kim Schoenholtz and Stephen Cecchetti
The forces driving government decisions are unusual because there is a widespread fear of losing an emerging arms race. No one wants to face plunging demand for their currency or surging outflows from their financial institutions should another central bank introduce an attractive new means of exchange. But that pressure to prepare for the financial version of military mobilisation can lead to a very unstable global system that thwarts monetary control.
Central bank digital currency (CBDC) can take many forms. While some may be benign, the most radical version – one that is universally available, elastically supplied, and interest bearing – has the potential to trigger destabilizing financial shifts, weaken the supply of credit, and undermine privacy.
Read the full VoxEU article.
Kim Schoenholtz is a Professor of Management Practice and the Director of the Center for Global Economy and Business.