Sovereign Digital Currencies: The Future of Money and Payments?

23 Pages Posted: 25 Oct 2020 Last revised: 4 Dec 2020

See all articles by Dirk A. Zetzsche

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; European Banking Institute

Ross P. Buckley

University of New South Wales (UNSW) - UNSW Law & Justice

Douglas W. Arner

The University of Hong Kong; The University of Hong Kong - Faculty of Law

Anton N. Didenko

University of New South Wales (UNSW) - Faculty of Law

Lucien J. van Romburg

University of New South Wales (UNSW) - UNSW Law & Justice

Date Written: October 19, 2020

Abstract

Technology is reshaping money and payment systems in unprecedented ways. Catalysts include the launch of Bitcoin in 2009, the evolution of both decentralised and centralised technologies, the announcement of Libra in 2019, live trials of China’s Digital Yuan, and COVID-19, both in 2020.

This paper focusses on how technology might reshape money and payments going forward. It considers the policy issues and choices associated with cryptocurrencies, stablecoins and sovereign digital currencies and emphasises there is no single model for sovereign digital currency design. The catalysts reshaping monetary and payment systems challenge regulators. While Bitcoin and its thousands of progenies could be ignored safely by regulators, Facebook’s proposal for Libra, a global stablecoin, brought an immediate and potent response from regulators globally. This proposal by the private sector to move into the traditional preserve of sovereigns – the creation of currency – was always likely to trigger such a regulatory response and also the launch of sovereign digital currencies by central banks. China has moved first with its Digital Yuan – an initiative that may well in time provoke a chain of central bank digital currency issuances around the globe.

COVID-19 is driving digitalisation to new heights, particularly in electronic payments. In this context, we argue that central banks should focus not on rolling out novel new forms of sovereign digital currencies, but rather on transforming their payment systems. Further into the future, we expect domestic money and payment systems to involve public central banks cooperating with (new and old) private entities to launch digital currencies which underpin better monetary and payment systems at the domestic and international levels.

Keywords: Sovereign digital currencies, central bank digital currencies, Libra, Digital Yuan, COVID-19, payments, blockchain, distributed ledger technology, mobile money, e-money, fast payment systems, real time gross settlement systems

Suggested Citation

Zetzsche, Dirk Andreas and Buckley, Ross P. and Arner, Douglas W. and Didenko, Anton N. and van Romburg, Lucien J., Sovereign Digital Currencies: The Future of Money and Payments? (October 19, 2020). University of Hong Kong Faculty of Law Research Paper No. 2020/053, UNSW Law Research Paper No. 23-30, Available at SSRN: https://ssrn.com/abstract=3714386 or http://dx.doi.org/10.2139/ssrn.3714386

Dirk Andreas Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

European Banking Institute ( email )

Frankfurt
Germany

Ross P. Buckley

University of New South Wales (UNSW) - UNSW Law & Justice ( email )

Sydney, New South Wales 2052
Australia

Douglas W. Arner (Contact Author)

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Anton N. Didenko

University of New South Wales (UNSW) - Faculty of Law ( email )

Kensington, New South Wales 2052
Australia

Lucien J. Van Romburg

University of New South Wales (UNSW) - UNSW Law & Justice ( email )

Kensington, New South Wales 2052
Australia

HOME PAGE: http://https://fintechrevn.org/our-team/

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