Doubling down on failed policies with central bank digital currencies, by Alasdair Macleod

Whether it’s a piece of paper backed by nothing or a digital currency backed by nothing, phony-baloney money is still phony-baloney money. From Alasdair Macleod at

Many central banks are researching retail digital currencies, which if implemented, would allow them to issue a new currency directly to the public, managed on a centralised ledger bypassing commercial banks. While there is an element of feeling the need to address new private sector currency developments which threaten central bank monopolies, specific objectives are beginning to emerge.

This article does not consider technology issues, confining its comments to the policy objectives identified in an IMF survey of central banks.[i] It points out the dangers to individual freedom and why the application of a monetary policy extended to include central bank digital currencies are bound to fail.


Fiat currencies are failing — let’s try something different. This seems to be the logic partly behind the feverish research by central banks into digital currencies (CBDCs). The central banks of the Bahamas, Ecuador, Ukraine and Uruguay have conducted limited scale pilot projects, and China is also reported to have planned trials through Meituan-Dianping, an on-line food retailer and two further Tencent backed companies, though the status of these projects is at the moment unclear.

These are retail CBDCs. With a retail CBDC, the central bank issues the new CBDC to the public, either through agents, such as commercial banks, or directly to the public, bypassing the current financial system entirely. An advantage claimed over existing fiat is that it is capable of providing access through mobile technology to everyone, including the unbanked. But these advantages are already available through credit and debit cards and e-money, stored in apps such as M-Pesa and AliPay. They work perfectly well, replacing the need for cash where cash is not necessarily available or desired by transacting individuals. Perhaps further development of these facilities could be seen to pose a threat to the fiat monopoly.

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