This VoxEU/CEPR article argues that there is no obvious justification for retail central bank digital currency (CBDC) in most advanced economy (AE) jurisdictions where a large share of the population has access to bank accounts. From a user perspective, such CBDC do not seem attractive enough to compete successfully with private bank deposits and private retail payment systems like PayPal. The key advantage of CBDC, its absolute safety, is irrelevant for retail payments. However, for emerging and developing economies (EMDEs), retail CBDC could be a suitable tool to approach the problem of a large share of the population being unbanked. However, in both AE and EMDE jurisdictions, there is a huge potential for wholesale CBDC as a store of value for retail payment service providers.
The European Central Bank (ECB) has made clear that banknotes are here to stay. Even if you cannot use banknotes for e-commerce, you could still hoard them at home as a store of value. And the ECB is not only committed to issuing banknotes, but also to supporting the efforts of the European Commission and others to maintain the usability of banknotes. The ECB has no intention at all to make banknotes disappear, but the opposite. Hence, there is no intention to use negatively-renumerated central bank digital currency (CBDC) to help monetary policy below the effective lower bound on policy rates. However, one could imagine a tiering system where citizens can hold up to a certain amount – for example, €3,000 – for which remuneration would never be negative, while for holdings beyond that, an interest rate would be applied which would be below other risk-free liquid investments, and possibly negative.
Stephen Phillips, VP product from Bitt presented the architecture of the system at the Hyperledger Capital Markets Special interest Group on January 27.
The U.S. is unlikely to allow most businesses to abandon cash payments because of concerns about consumers lacking access to or familiarity with digital payment methods. These include senior citizens, undocumented immigrants, people who can’t qualify for credit cards or afford smartphones, and the millions of households that lack bank accounts. New York City, Philadelphia, New Jersey and San Francisco have passed legislation requiring most stores and restaurants to accept cash. Meanwhile, people still like to have physical dollars and cents. Although people in the U.S. were using cash less in transactions, they were holding more of it as a store of value, a May Fed survey found.
Hedge funds on CME are short on Bitcoin futures for more than $1 billion. They have been increasing their short positions since October when the BTC price started climbing. As data provider Skew has previously shared, these leveraged funds, while short on CME Bitcoin futures, are likely to be long on Grayscale Bitcoin Trust (GBTC) trying to collect the Grayscale premium and the CME futures basis. Interestingly, for the first time ever, the GBTC premium, the difference between the market price of bitcoin and the implied price by GBTC, has gone negative today. This premium has been dropping ever since December 22nd, 2020, when it was above 40%.
* The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or its management.