Payments and digital currencies
Warwick Business School
wbs.ac.uk
People are using cash less to pay for what they buy. Does this matter? It does to those who have no bank account, or access to other, electronic payment forms. And it matters to central banks responsible for the resilience of the payments system and the transmission mechanism for monetary policy. Private digital ‘currencies’ do not share all the attributes associated with a true currency – store of value, unit of account and a medium of exchange. They have, however, grown in popularity, could displace at least some functions of other currencies, and can exist outside of the banking system. Traditional forms of finance may be under threat. One option to respond is by extensive regulation of private digital currencies – so far largely avoided. Another would be for central banks to introduce their own.
To date, four countries use central bank digital currencies (CBDCs) and many others are running pilots. Around 120 are at least researching the possibility. It is probably just a matter of time before we are all using them but many operational questions about their optimal design and use are still being debated, including questions over whether they will increase the risk of bank runs, and privacy concerns over their substitution for cash.
Learn more about the transformative impact of emerging technologies on financial activities from experts at the Gillmore Centre for Financial Technology
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