Benoît Coeuré and Jacqueline Loh: Bitcoin not the answer to a
cashless society
Op-ed by Mr Benoît Coeuré, Chair of the Committee on Payments and Market Infrastructures
(CPMI), and Ms Jacqueline Loh, Chair of the Markets Committee, published in the Financial
Times under the title "Bitcoin not the answer to a cashless society", 13 March 2018.
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Digital token reveals the weakness of our current payment systems
Next week, finance ministers and central bankers from the group of G20 countries will discuss
bitcoin and other blockchain-based digital tokens. Such cryptocurrencies are poor imitations of
money. Almost nobody prices goods in bitcoin, few use them for payments, and, as a store of
value, they are no better than gambling in a casino. Policymakers are rightly worried about
consumer and investor abuses, as well as illicit use.
Yet, while bitcoin and its cousins are something of a mirage, they might be an early sign of
change, just as Palm Pilots paved the way for today's smartphones. Cash will not be king
forever, even though it still rules in many parts of the world. New research from the Bank for
International Settlements (BIS) shows non-cash payments have roughly doubled in size, as a
share of GDP, since the turn of the century. Some Nordic countries are already cutting back on
cash. And the iGeneration is more likely to reach for a payment app than a purse. To their
children, banknotes and coins may look like museum exhibits.
These trends have sparked a discussion about whether central banks should issue their own
digital coinage. A new report on central bank digital currencies (CBDC), released by the two
committees we chair at the BIS, sets the scene for this important debate.
What is a CBDC? The answer goes to the heart of money and payments. Today, banknotes and
coins are the only way consumers can access central bank money. The money in your bank
account is actually provided by a commercial bank. Your bank promises to exchange that money
for cash when you go to the ATM. But when you pay bills online or swipe your credit card, you are
using commercial bank money.
Under the current system, only financial institutions have direct access to digital central bank
money via accounts at their national central bank. A consumer-oriented CBDC would extend that
access to everyone. Although this might not seem like a big step to digitally savvy consumers, it
could have far-reaching ramifications for the role of money, the financial system and the
economy.
For example, a CBDC for all would challenge the current model of banks taking customer
deposits and using that money to fund the lending that helps drive the economy. The
consequences for bank business models and financial stability would need to be carefully
parsed. More fundamentally, do we need a CBDC? Existing payment arrangements - based on
commercial money - are already digitally provided and increasingly convenient, instantaneous
and available 24/7. Nevertheless, if cash disappeared, there would be a stronger case to
consider a CBDC. Otherwise, the public would be wholly dependent on commercial money, and
trust in the currency, a key public good, would be reliant on the creditworthiness of commercial
entities and on specific payment technologies. However, despite the growing popularity of
electronic payments, the cashless society is not here yet. Demand for bank notes is still growing
in many countries.
If it were to come, a CBDC would have to be as convenient for consumers and businesses to
use as the commercial equivalent. It would have to be hacker-proof. If we want to stop illegal use,
it should not grant the same anonymity of cash to users. But giving central banks unprecedented
amounts of information about individuals is equally controversial. There is no one-size-fits-all
solution.
In sum, thinking carefully about the future of money is timely in view of new technologies and
increasing use of electronic payments. Still, it is not yet clear whether CBDCs for consumers
and businesses are necessary or desirable. The jury is still out, and the answer will clearly differ
country by country.
Away from the public eye, change may also be happening and perhaps sooner. The BIS report
canvasses a second, complementary, model of CBDCs aimed at financial institutions that would
build on the blockchain technologies underlying bitcoin. Such tokenised forms of digital central
bank money could potentially help streamline many of the cumbersome clearing and settlement
processes that are currently needed to complete securities and foreign exchange trades. So far,
however, central bank experiments with such forms of CBDCs have not shown conclusive
benefits for wholesale payments and beyond, but technology and design are evolving quickly.
Despite its many faults, bitcoin has put the spotlight on an old failing of our current system:
cross-border retail payments. Such payments not only permit shoppers to easily buy goods
online from overseas, but also allow foreign workers to send money home, supporting financial
inclusion and development. However, these payment channels are generally much slower, less
transparent and way more expensive than domestic ones. Improvements here are the best way
of rising to the bitcoin challenge.