Now Is Not the Time for Central Bank Digital Currencies

Kim Schoenholtz

By Kim Schoenholtz and Stephen Cecchetti

By Kim Schoenholtz and Stephen Cecchetti

In a recent column, the FT’s Martin Wolf called for central banks to introduce their own retail digital currencies now. While we share several of Martin’s concerns about the importance of faster and cheaper payments, financial inclusion, and limiting private digital currencies, we could not disagree more with his argument for central bank digital currencies (CBDC). In fact, we hope that central banks will not introduce digital currencies that are universally available, supplied without limit in exchange for bank deposits, and bear interest — what we call a “universal” CBDC.

Our arguments are twofold. First, we do not need CBDC to promote faster payments, broaden financial access, or limit private digital currencies. Second, universal CBDC raises critical problems that threaten financial stability and privacy, and unnecessarily boost the role of the state in credit allocation.

Let’s start with payments. As it stands, the public and private sectors are already moving to provide cheaper, faster, more reliable, and more accessible systems that operate both within and across borders. For example, the euro area has the TIPS system, with a processing time of 10 seconds at a cost of €0.002 per transaction. Meanwhile, the UK has Faster Payments, Canada is testing Real-Time Rail, and the Federal Reserve is set to launch its own instant payments service, FedNow, in 2023. None of these require CBDC.

Read the full Financial Times article.

Kim Schoenholtz is a Professor of Management Practice and the Director of the Center for Global Economy and Business.