Cryptocurrencies, central bank digital currencies… the future of money

The joint report published on 12 October by BIS and seven leading central banks (which included the ECB, BoJ and BoE) setting out the framework for the issuance of a central bank digital currency (CBDC) underlines the interest for a digitalisation of the currency at global level. A conventional currency derives its value from the economic agents’ confidence in the capacity of the central bank to preserve this value. By contrast with this centralised system, a crypto currency der ives its value from the economic agents’ confidence in a decentralised, anonymous network. Digital currencies present advantages in terms of anonymity, transaction costs an d simplicity compared with traditional platforms used for electronic payments and cross-border payments. However, there are major barriers that put a different shine on the proposition: the excessive reali s ed volatility displayed by digital currencies, the slowness of most of these in completing transactions compared with conventional e-payment platforms, and right now the absence of a regulatory framework. Finally, there is the apparent absence of any fundamentals (save supply and demand) from which to determine any form of fair value distinct from market noise variation s. As for central banks, while initially sceptical over currency digitalisation, they are giving increasing thought to the introduction of a digital currency, both in developed countries and in emerging countries, so as not to be crowded out by private players (such as Facebook with its Libra digital currency ). The introduction of a digital currency presents clear benefits for central banks and, depending o n the type of digital currency adopted, it could be a new, more direct tool in the transmission of monetary policy. The introduction of a digital currency in the current ecosystem is not without risk for commercial banks (disintermediation, bank run) as well as for central banks, if hurried into rolling out digital currencies against their will by private players, with the risk central banks will surrender part of their monetary sovereignty. “Value does not exist outside the consciousness of men” , Carl Menger in the Principles of Economics