Central bank digital currencies’ (CBDC) potential to help governments’ fiscal policies has been highlighted in a speech by the head of the Bank for International Settlements (BIS) Innovation Hub.
In a wide-ranging address entitled ‘Finance Disrupted’ delivered at a conference in Geneva, Benoît Cœuré outlined how a CBDC would be an “easier” way for governments to make, for example, Covid-19 relief payments than relying on traditional cheques.
Cœuré’s remarks come during a period when a growing number of central banks have started experimenting with retail CBDCs (also known as ‘general purpose’ CBDCs – CBDCs that would be available to the general population) albeit that most have yet to commit to actually launching a CBDC.
“A great deal is being written about the effect that a retail CBDC could have on monetary policy,” Cœuré said. “I believe, in fact, that CBDC could have a greater impact on fiscal policy.”
“Think of the extraordinary support that some governments provided to the population during the pandemic,” Cœuré told the audience on 7 October. “Some countries showed great ingenuity in using digital technology to reach those most in need. Others mailed cheques to people while bank branches were closed because of lockdowns and people were told to stay home. Imagine how much easier it would have been to transfer digital money to people’s e-wallets in real time.”
Functionality possibilities coming into focus
Most central bankers’ speeches on CBDC, including Coeuré’s, have tended to focus on technical challenges and design considerations.
Indeed Coeuré himself just last month urged central bankers worldwide to ‘roll up their sleeves’ and ‘accelerate work on the nitty-gritty’ of CBDC design. In a speechentitled ‘Central bank digital currency: the future starts today’ delivered in Slovenia’s capital Ljubljana, the Frenchman said that ‘CBDCs will take years to be rolled out, while stablecoins and cryptoassets are already here’, making it ‘even more urgent to start’.
But as central bankers become more deeply involved in exploring technical questions, so fiscal and functionality possibilities can come into focus for governments and policymakers. The so-called ‘programmability’ of a central bank digital currency, for example, would allow fiscal operations to be integrated into payments to facilitate new approaches to welfare distribution or tax.
CBDC specialists have described how government-to-citizen digital money payments could be ‘programmed’ to be redeemable only for certain items, for example schoolbooks; or given an expiry date or locality where funds need to be spent.
But the focus of most authorities’ CBDC research and remarks – for now – tends to be on technical matters. As an example, the Hong Kong Monetary Authority (HKMA) last week released a 50-page technical whitepaper exploring potential technical design options for issuing and distributing a retail CBDC. The authority said it aimed to ‘come up with an initial view’ by mid-2022.