Many major central banks want to introduce their own digital currencies this decade as public money in the form of cash is phased out, and governments aim to preserve their currencies in the face of challenges from private, or decentralised, units of account.
Tony Richards, the chairman of the Reserve Bank-backed Central Bank Digital Currency (CBDC) steering committee, said last week it was possible the RBA recommend would parliament consider a digital dollar within five years. The Bank of England, European Central Bank (ECB), Sweden’s Riksbank and People’s Bank of China (PBOC) will move earlier.
A non-interest bearing CBDC as a digital equivalent to cash, and liability on central banks, makes strategic sense for governments that want society to converge on a common unit of account. Most people find converting kilometres to miles or Celsius to Fahrenheit confusing enough without thousands of forms of private money or self-styled stablecoins confusing the picture.
In reality the desire to control money and uniform measures of account goes back 800 years to the British Magna Carta of 1215, which enshrined the principle of equality before the law and that “there shall be but one measure throughout the realm”.
Article 1, section 8 of the US Constitution of 1789 states, “the Congress shall have the power to coin money, regulate the value thereof and fix the standard of weights and measures”.
Therefore, a government-sanctioned CBDC is nothing more than a logical and historic extension of governments’ desire to control money as the one true form of liquidity to promote the advantages of uniformity, full employment, trust in trade, a stable unit of account and buying power overseas.
This is largely reflected in the Reserve Bank’s current mandate, but it’s true that public money could disappear as a means of payment (rather than as a source of liquidity or reserve of future purchasing power), which explains why central banks that are closer to political than constitutional projects, such as the PBOC and ECB, most heavily favour CBDCs.
Beijing has banned crypto, assaulted its tech giants including Alipay and already launched a digital yuan (e-CNY) as cash.
For federalists in the European Union, an ECB-issued e-EUR is another chance to push for political union and erode the remaining sovereignty of its member states.
It also represents more leverage for the economic zone to push back against big US tech businesses in the payments and consumer-facing space like Visa, Google, Mastercard, and Microsoft, which the federalists, perhaps correctly, view as anticompetitive.
So both the EU and China may use CBDCs to sandbag monetary sovereignty and associated homegrown technological innovations in payments to check the power of both capital and big tech, which it views as beyond the control of a captive US Congress.
Lowe ‘very sceptical’
Even as RBA governor Philip Lowe insisted at Wednesday’s The Australian Financial Review Business Summit he’s “very sceptical” Australia will have a digital retail dollar (as opposed to wholesale) any time in the future, the idea isn’t so crazy when you consider, for example, that Sweden’s Riksbank is testing an e-krona
The Riksbank says it’s close to effectively launching an e-krona once it resolves how it will affect the central bank’s current mandate and what legal amendments are needed.
Dr Richards said the ECB has discussed an individual holding limit of €3000 ($4700) and the Bank of England between £10,000 and £20,000 on potential sovereign money, as he emphasised the steering committee’s view that the biggest risk around CBDCs is disintermediation of a commercial and retail banking sector that currently works well.
Still, it’s fair to ask what is the point of a holding limit on a CBDC in a free market and how would it work or be enforced? These questions seem unanswered, other than that central bank issuers want to discourage citizens from hoarding CBDCs due to a crypto-bro-style scepticism over the solvency of private banks.
Moreover, would an e-AUD lessen the advantages of competition among banks in providing financial services to retail customers? This seems likely, and the RBA’s official policy position remains that it sees no strong use case for a CBDC partly on this basis.
However, that position may come under pressure as other governments issue more public money to strengthen the state’s historic role.
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