The Bank of England (BoE) and Norges Bank have each released a seminal paper on central bank digital currencies (CBDCs), hoping to further discussion on the feasibility of digital currencies within the central banking system.
Aware of the mass adoption of cryptocurrencies, central banks around the world have been considering the merits of adopting a central bank digital currency (CBDC); which is ironic given that the bitcoin was initially conceived with the tall order of subverting central banks. A spate of publicized discussions by central banks about the feasibility of digital currencies have dominated headlines since last year: the Reserve Bank of India, Central Bank of Canada, Bank of Korea, the US Federal Reserve System, the Bank of Sweden, the Swiss National Bank, the governments of Kazakhstan and Japan, and even the Bank for International Settlements — widely considered to be the central bank of central banks, have all examined the macroeconomic implications of CBDCs within the context of their local financial systems.
Although most of the central banks mentioned still view CBDCs as somewhat of a pipe dream, the idea is steadily gaining traction given there are speed, cost and re-conciliatory benefits to be reaped from replacing electronic cash with blockchain based digital currencies. The two latest banks to chip in their thoughts are the Bank of England and Norges Bank (the Central Bank of Norway), who have taken different approaches to exploring the topic.
Drawing on both UK and US central bank data, the Bank of England recently issued this pedagogical paper constructs 3 theoretical econometric models to examine whether central bank digital currencies (CBDCs) should be used as an interchangeable asset in lieu of existing bank reserves. It also explores the suitability of CBDCs as an interbank settlement medium and a retail payment medium.
In contrast, Norges Bank released a hypothetical case study on the impacts of digital currencies accepted as legal tender in the economic and regulatory context of Norway. It proposes possible conceptual frameworks that could be adopted by Norges Bank, and undertakes several cost benefit analyses to determine the best use of central bank digital currencies in the present day; whether as a payment instrument or a value storage instrument. Unlike the BoE’s paper, the case study serves as a qualitative assessment of CBDC’s –seeing that cash usage is now at the lowest point in Norwegian history.
Both central banks have prefaced their papers with a disclaimer that they have no concrete plans to instate central bank currencies, whether presently or in the distant future. However, they intend for the papers to be a resource for additional discussion and hopes that stakeholders can build on their findings.