Central Bank Issued Digital Currencies
9 Pages Posted: 19 Feb 2021
Date Written: January 2021
Digital payments are essential to the functioning of a modern economy, yet pose challenges to the prudential supervision of the financial system. At the same time, the use of physical cash persists in most countries due to its ease of use and the perceived or actual advantages of anonymity. A digital currency is seen as a possible solution to the oversight problem and a suitable instrument for modernising trade and exchange through the elimination of physical cash and its attendant production, storage and transport costs as well as its unsuitability for online payments. In this paper, we provide a non-technical overview of the advantages a central bank issued digital currency (CBDC), mechanisms through which such a currency can be implemented and how it might interact with the conventional banking system. The discussion includes but is not limited to distributed ledgers and we briefly consider the examples of three pilot CBDC projects.
Keywords: Digital payments, central banks, distributed ledgers
JEL Classification: G20, E42
Suggested Citation: Suggested Citation