Central Bank Digital Currency

Impact on monetary policy & control

This article explores the effects of digital currency issued by central banks focusing on monetary policy and control aspects of Central Bank Digital Currency(CBDC).

The media and methods of value transfer affect all of us. Because of this fact, a lot of human effort has been spent on this subject. Proposals for a digital currency without intermediaries have also been looked at before the advent of Bitcoin, like eCash by David Chaum. Bitcoin had the first success in creating a borderless currency, the combination of several existing methods resulted in a eminently successful experiment. Bitcoin was not an immediate threat to the sovereign monetary control of central bankers, because adoption was low, scale was non-threatening and it has since transformed into a speculative vehicle. Bitcoin also relies on a fairly unsophisticated design choice for inflation. However, it did create some space for diginauts in the central banking system (Konig J P, 2014) (Andolfatto, D 2015).

The impetus for CBDC has since received a massive push due to the proposal for Libra. Libra’s appearance at scale and across sovereign boundaries could cause central banks to lose control of monetary policy, among other effects. See my article on Libra. Libra also addresses some of the inefficiencies of the payment system and the problems of the unbanked. At least on the surface. We have to be grateful to Libra for shaking central bankers from their conservative, established ways. Sovereign nations like…