And if a private-sector digital currency uses the technology to substitute for a third-party clearer, the central bank counterpart would do the opposite. The aim would be to widen access to the central bank’s balance sheet, beyond commercial banks. There’s no rigid correspondence here: in principle, one could introduce the technology and preserve the current arrangements, under which it is commercial banks that hold central bank deposits; it’s also possible to increase the number of counterparties without it. But the distributed ledger would probably make it easier to do so. That might mean adding only a narrow set of counterparties – perhaps a wide range of non-bank financial companies, say. It might mean something more dramatic: in the limiting case, everyone – including individuals – would be able to hold such balances. So although they might share the same technology, and the same name, the private and central-bank versions of a digital currency are actually rather different. The one would expand what the other seeks to replace. BIS central bankers’ speeches  1  As far as its economic effects are concerned, my guess is that much would depend on how exactly a central bank digital currency (CBDC) is designed – and in particular the extent to which it competes with the main form of money in the economy, commercial bank deposits. As individuals, we already have the ability to hold claims on the central bank, in the form of physical cash.
4  BIS central bankers’ speeches  Would it compete with cash or with bank deposits? The CBDC and “narrow banking” But which would it be – an actual bank account, with all the extra services such things entail, perhaps including the payment of interest; or simply “e-cash” – something that can only be used for retail transfers and doesn’t receive any interest? This is an important question. If all it did was to reduce the demand for physical cash, it’s not clear the macroeconomic effects of a CBDC would be that significant. It’s possible the retail payments system might become more efficient. It’s also true that, were a CBDC fully to displace paper currency, that would open the door to the possibility of materially negative interest rates (Buiter (2009), Rogoff (2014), Haldane (2015)). But that would require explicitly abolishing cash, not just introducing an electronic alternative. As long as it’s possible to hold something with a guaranteed nominal return of zero there’s a similar lower bound on all other forms of money, whether reserves at the central bank or a more widely available CBDC. Leaving aside the question of whether or not you should actively get rid of banknotes8, a purely cash-like version of a CBDC would mainly involve substituting one zero-yielding liability of the central bank for another. It seems to me that the more material effects of a CBDC would arise if it provided competition not just for banknotes but for commercial bank deposits as well.