The Digital Economy’s New Monetary Imperative
Central bank digital currencies are usually touted as a tool for improving cross-country payment systems, fostering financial inclusion, or providing a substitute for diminishing cash. But as important as these benefits may be, they are secondary to the indispensable role CBDCs could play in preserving monetary sovereignty.
LONDON – In recent years, central bank digital currencies (CBDCs) have become an increasingly hot topic for debate among economists, regulators, and financial and business commentators. But the primary case for the technology is not economic or financial; it is political. In a rapidly digitalizing world, central banks are staring down a future in which they may lack the tools necessary to manage crises, and in which they may no longer be able to protect their monetary sovereignty.
Understood in this context, a CBDC is not just a mechanism for enhancing the payments system, but also a crucial weapon in the fight for the “soul” of the monetary and financial system, and for the macroeconomic stability that it provides. Without their own toolkits for the digital age, central banks will not be able to maintain their monopoly over money creation, and their governments may be eclipsed geopolitically.
A full accounting will show that the benefits of CBDCs outweigh their costs and risks, so long as safeguards against privacy violations and government overreach are introduced from the outset. Recognizing this, most central banks around the world are now considering their options and studying potential design features; some have already rolled out CBDCs.
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