The case for and against CBDC – five years later

Abstract

The pros and cons of central bank digital currencies have been debated intensively since 2016. This paper focuses on the recent debate, i.e. mainly in 2021, while also returning to some lessons from history. It reviews both the recent arguments in favour of CBDC emphasised by central banks preparing to issue CBDC, and the persistent concerns on CBDC, distinguishing a “dismissive” and a “fearful” perspective. Regarding the latter it is argued that the risks associated with CBDC can be mitigated by an adequate design. It is concluded that central banks should eventually react to the digitalisation of payments through CBDC issuance, even if not necessarily in the very near future, and that they should not give up the important role they had for so long in retail payments.

Keywords: central bank digital currencies, central bank money, retail payments, financial stability

JEL Classification: E3, E5, G1