If so, then there may be similar potential uses in the non-financial private sector. However, it’s the application to the settlement of financial assets – above all financial securities like equities and bonds – in which the private sector has become most interested. There are several new firms seeking to exploit the opportunity. It remains to be seen whether these ventures prove successful. But one can understand why they’ve come about. What a distributed ledger would seek to replace, in the case of securities exchange, isn’t just a single “third-party centralised clearer”, but a complicated system with lots of institutional layers: custodians who look after the securities and perform basic services such as collecting dividends; brokers, through whom trade orders are placed; exchanges and clearing houses where exchange and settlement occur. Each has its own particular function in the process; at each stage, there may be a degree of settlement risk; each is obliged to keep its own record of the same balances and transactions. It’s hard to know the combined cost of these services, but a recent study estimated that, in the G7 countries, the cost of clearing and settling securities was $ a year5. These are the economic resources it requires to transfer the assets, verify who owns what, and reconcile the various records. The hope is that, by displacing these various middlemen, a distributed ledger would result in a cheaper and more secure system for providing these services.
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.