The Orkney Slew and Central Bank Digital Currencies

Abstract

This Article on central bank digital currencies is motivated by a parable, The Orkney Slew, which is set in an archipelago. Based on the parable, we point out a significant economic market failure that exists in cross-border payments realm. Then the analysis focuses on real-world examples and the national security concerns—including for AML/CFT and the continued efficacy of U.S. sanctions—associated with the rapidly evolving digital payments landscape.

Many central banks around the world are now cooperatively experimenting with cross-border interoperability of digital currencies. They are motivated by the idea of building a global network—an infrastructure—to improve global supply chains and large value cross-border payments as well as to mitigate national security concerns. While we do not believe that such an infrastructure is necessary at this moment, we do argue that cross-border experimentation is necessary.

Keywords: central bank digital currency