In the face of technological innovation and declining cash use, we need a new kind of public money fit for the 21st century. And with Covid-19 throwing our increasingly privatised and precarious money and banking system into even sharper relief, today Positive Money launched its latest report exploring a central bank digital currency.
After gaining headlines from Yahoo Finance and Finextra, we launched our latest report ‘Money We Trust: Designing Cash’s Digital Counterpart’, with a webinar to an audience of more than 300 people around the world.
In the face of our fragile financial system, the rate of technological innovation and the continued decline of cash usage, we need a new kind of public money fit for the 21st century. A central bank digital currency (CBDC) offers a way to maintain trust and prevent the complete privatisation of our money system, by introducing a digital counterpart to cash.
Report co-author Zack Livingstone started by introducing the report, and was joined by Financial Times Alphaville editor Izabella Kaminska, President of the Modern Money Network Rohan Grey, economist Frances Coppola and Fran Boait, Positive Money’s Executive Director, who hosted the discussion.
Hosting this report launch as a webinar allowed us to take questions from around the world. The first hot topic to emerge from panelists and audience alike, was whether CBDC should be able to support anonymous transactions. Zack explained that physical cash allows for complete anonymity and reinforced Positive Money’s stance that it must therefore be protected and continue operating alongside CBDC. He also went over some of the key design features of our CBDC proposal and how they would help make CBDC safe for financial stability, while also being a platform for new public policies and closer collaboration between the Bank of England and the Government.
Rohan Grey made a strong case for starting with a token-based CBDC, and then building the functionality for an account-based system on top. He envisioned a system that was intended to be very versatile, and could be made to support anonymous transactions in some cases. He also encouraged us to consider that digital currencies have the potential to be very transformative, and warned against limiting the functionality of CBDC to work within the existing paradigm for public policy.
Zack responded with a reminder that the clock is ticking. If central banks fail to act, private companies will begin issuing their own digital currencies. Facebook’s Libra project, which recently released its second white paper, is trying to position itself as a dominant force in the private payments market. We simply don’t have the luxury of time in being able to perfect the system we’d like to create to compete.
There was keen interest in whether CBDC could be used to support Universal Basic Income (UBI). Despite advocating for both CBDC and UBI in the past, Frances expressed her concerns over rushing into things. The panel agreed that rushing out a CBDC would be a bad move, but Zack was keen to emphasise how vulnerable payments systems are to disruption under the current system, and that if a financial crisis hit while we were under lockdown it could have a very serious impact.
Another question asked whether there should be any conditions people would have to meet before opening an account. Izabella expressed concerns about the CBDC system being used to discriminate against different groups, making the point that whilst during this current crisis we’ve been happy for private companies such as supermarkets, to prioritise serving certain groups of consumers over others – a state of affairs we wouldn’t have accepted a few months ago. Emphasising that in normal circumstances, the neutrality of money is key to a functioning economy. Frances and Rohan expressed similar concerns, but in the context of governments discriminating against people. Generally speaking, there was concern that CBDC could be abused by powerful groups, public or private, and there was general agreement that we needed to make sure CBDC did not cause negative outcomes.
Another question asked panelists to comment on trust in money, a key theme of our new report. Frances responded first, saying that maintaining trust in a monetary system is hugely important, and that if a CBDC was capable of shoring up trust from the general public in the financial system, which has been low since the financial crisis by shifting the bulk of small financial transactions away from private banks, then despite the downsides, CBDC could be a very good thing. Zack echoed her comments, and suggested that for us to trust our money we really need to understand it, which is why it’s so important to be engaged with these questions on a political level, and for our policymakers to help people understand the complexity we’re facing as money goes digital.
Rohan wanted to underline the importance of vision to remind us to not let our plans be entirely clouded by concerns over practicality, but to remain driven by the question of what kind of world we want to live in.
Finally, the panel was asked whether we could realistically see a CBDC in the UK in the next 5 to 10 years? Frances thought so, and Rohan pointed out that central bankers are scared by Libra and the threat it presents to their power, and so will be driven into action. Zack agreed, pointing out that central banks are mostly reactive institutions. Instead of looking towards them for signs, we should instead look at how quickly events are moving with stable coins and active CBDC projects, like the one being tested in China. He concluded that we could see a CBDC faster than we think, and hoped central banks would be able to move fast to prevent a fully private money system taking hold.
This is a very challenging time, and now more than ever we need a payments system we can rely on. In our latest paper ‘Money We Trust: Designing Cash’s Digital Counterpart’, we explore how such a system could be safely launched to help everyone through hard times like these. Many thanks again to everyone who tuned in for the webinar and we look forward to debating our proposals in the months ahead!