Last week I participated in an online forum called US CBDC—A Disaster in the making? It was hosted by Sustany Capital’s Christian Kameir, and we had a very productive discussion about the policy aspect of central bank digital currencies (CBDCs).
While our panelists agreed that there is very little chance the Fed will launch a fully functional CBDC in the next year or two, we did not necessarily agree on whether that was good or bad.
I believe that the Fed should not launch a CBDC. Ever. And I think that Congress should amend the Federal Reserve Act, just to be on the safe side. (Kudos to Rep. Emmer (R-MN).) That position puts me at odds with the army of consultants who have been churning out papers and proclamations on CBDCs, most of whom seem only to question when the Fed will launch a CBDC.
So, I was elated that our panel focused on the pure policy questions related to whether the Fed should launch a CBDC. And the experience only strengthened my resolve to keep writing about why the Fed should not. So, here goes.
As a starting point, I want to distinguish between a wholesale CBDC and retail CBDC.
With a wholesale CBDC, banks can electronically transact with each other using a liability of the central bank. Because that is essentially what banks do now, transact and settle (electronically) using reserve accounts held at the Fed, there aren’t very many new and interesting wholesale CBDC policy issues. (Basically, the Fed has had a wholesale CBDC for decades.)