Digital currencies hold much promise for central banks

Subject

Central bank digital currencies.

Significance

Central banks are investigating potential applications of central bank digital currencies (CBDCs) and this month the Financial Stability Board released its consultative paper on regulating and supervising stablecoins, which are pegged to a traditional asset. Issuance of CBDCs is growing closer. In emerging markets (EMs), they could provide governments with a tool to improve their monetary systems.

Impacts

• Digital currencies can give central banks ‘precision monetary policy’ by bypassing intermediaries and targeting sectors or groups.
• The COVID-19 pandemic highlights the health advantage that digital money has over 'dirty' banknotes.
• Digital currencies will lower the cost of remittances to emerging nations but over years rather than months as barriers need to be overcome.