The Computer-Glitch Argument for Central Bank eCash

As if central banks ’ powers and balance sheets haven’t grown quite enough since the outbreak of the subprime crisis, we’ve been hearing more and more calls for them to expand their role in retail payments, by supplying digital money directly to the general public.Some proposals would have central banks do this by letting ordinary citizens open central bank accounts, while others would have them design and market their own P2P“digital currency.” Either sort of central bank digital money would, the plans ’ supporters claim, be just as convenient as today’s dollar-denominated private monies. But central bank digital money would also have the distinct advantage of being just as safe as paper money.Earlier this weekthe FT ’s Martin Sandbu jumped onto the central bank “ecash” bandwagon, in an article prompted bythe recent disruption of Visa ’s European payments network. That disruption, Sandbu wrote, supplied “one of the strongest considerations in favour of introducing official electronic money.”[1]Sandbu ’s argument is just one of many that have been offered for allowing central banks to supply ecash. But it’s representative of the rest in at least one crucial respect: like them, it may seem solid enough at first glance. But upon closer inspection, it turns out to be full of holes.Central Banks and Computer GlitchesAbsent a crisis of confidence, the most likely causes of a private payments system disruption are (1) hacking and (2) a software or hard...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs