Public digital money, including CBDCs

Patrick McConnell

This chapter considers various types of public digital money – that is, money created by public or semi-public institutions, such as central bank digital currencies (CBDCs) – and how they differ, particularly with regard to the operational risks of supporting them.

Central banks issue physical money, in the form of cash, which is used by citizens and businesses everywhere. However, as discussed in Chapter 2, cash is decreasing in use in many countries to the point where some are predicting a cashless future. However, as suggested in Chapter 1, a less-cash future is more likely in the medium term. Central banks also issue digital money in the form of reserve accounts, but only to a subset of the financial community, mainly the largest banks, (see Chapter 5 and RTGS).

With the use of physical cash decreasing, precipitously in some countries, an obvious question is: “when will central banks issue cash-like digital money directly to citizens?” Note that the question is when, not if, as such a future is made inevitable by technology – and some countries, such as the Bahamas, have already tentatively issued a CBDC. The real question then becomes: “why would a central bank issue a retail