A European Central Bank (ECB) paper discusses success factors for CBDC and how to avoid the risk of disintermediation crowding out private payment solutions. After examining ways to prevent excessive use as a store of value, the study emphasizes the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience or reachability are unattractive for users. Finding an adequate functional scope – neither too broad to crowd out private sector solutions, nor too narrow to be of limited use – is challenging in an industry with network effects, like payments. The role of the incentives offered to private sector service providers involved in distributing, using and processing CBDC is discussed, including fees and compensation. [Read more]
A NY Fed blog post considers several long-standing goals of central banks in their support and provision of retail payments, why and how central banks tackle these issues, and where central bank digital currency (CBDC) fit into the array of potential solutions. Because CBDCs are new and a range of approaches to implementation are being tried, central banks can learn more about the costs and benefits of CBDCs, relative to other approaches, by engaging in research and development. Answering these questions and uncovering new challenges would require a central bank to go far down the path of implementing a CBDC, whether that CBDC is ultimately adopted or not. [Read more]
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Upcoming Virtual Conferences at Which I’m Speaking:
The January 25-27 DC³ Conference: From cryptocurrencies to CBDC, will highlight the work of the Digital Currency Global Initiative with a spotlight on emerging trends, innovations and initiatives shaping the future of digital currencies. The conference is organized jointly by the International Telecommunication Union (ITU) and the Stanford University Future of Digital Currency Initiative (FDCI). [The program is available here, and click here to register (it’s free).]