STA Blog

Up until today I have made a point of not discussing, writing or opining on crypto and digital currencies. This is because, quite frankly, I don’t understand the subject. My slight shift in emphasis here was prompted by Madame Lagarde’s rather shrill comment and the fact that on the 18th of October ‘The Governing Council of the European Central Bank decided today to move to the next phase of the digital euro project [following a two-year investigation phase]: the preparation phase’ [which will last another two years].

The ECB communique continues: ‘the design envisages the digital euro as a digital form of cash that could be used for all digital payments throughout the euro area…It would allow users to settle payment instantly in central bank money’ [with distribution by supervised intermediaries, such as banks]. They note that there is a lot to do still including ‘finalising a rule book and selecting providers that could develop a digital euro platform and infrastructure, including testing and experimentation’. Sorry about the mangled sentences.

My concerns were discussed in a program on BBC Radio 4 on Friday the 17th November titled ‘The Digital Pound/The Meaning of Money’, one of a series called AntiSocial hosted by Adam Fleming – which I urge those who have the App to catch up with. His guests developed both sides of the question because the Bank of England is considering a Central Bank Digital Currency (CBDC).

The guests suggested there had been a lot of top-down information from politicians et al, fearing they looked out of touch, in a vacuum of information. Some of the many implications as yet not properly considered were inclusion, privacy, surveillance and control risks. Another side to the coin was whether one would prefer a CBDC run by a central bank or one run by Meta or a
Caribbean island. (Countries in the Eastern Caribbean Union have a version of CBDC. The seven countries involved are Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines.)

Guests also commented that in a way we have for decades had a CBDC: the Special Drawing Rights at the International Monetary Fund (IMF). There were other possibilities like CBDC with a time limit within which to spend it (useful when wanting to prod sluggish economies) or on what you can spend it (for government social programmes). Even the IMF has felt the need to join in saying CBDCs could increase de-dollarisation and ’could increase risks of flight to safety from retail bank deposits in periods of market stress’.

Covid-related lockdowns have seen lifestyles change dramatically, with concomitant effects on attitudes to technology. Surprisingly the use of cash (the old-fashioned folding kind) increased in 2022 because many find it easier to budget with. While Brits like the idea of holding their money on personal devices, 70% of the UK public support the legal enforcement of cash as payment and 90% want access to cash.