The Impact of Central Bank Digital Currencies on the Banking Sector

Podcast

Here is an interesting podcast by David Andolfatto. About the Impact of Central Bank Digital Currencies on the Banking Sector. He also gave a short summary of his recent paper about Central Bank digital currency, It doesn’t think a lot of Central Banks will be willing to experiment with the notion of issuing, the equivalent of digital cash, just for a lot of regulatory concerns, like knowing your customer requirements or anti-money laundering rules.

The Two payment structure in the US today-

  1. On one hand, you have these big powerful depository institutions, these private banks that have access to and can hold accounts directly with the Federal Reserve Bank. These accounts are interest-bearing accounts. They presently earn a 2% interest. The banks can send money between themselves using Fedwire, which is a real-time gross settlement system. So you can send money instantaneously and there’s like trillions of dollars that flow through this system every day and moreover for the banks, it costs almost nothing to operate this Database Management System. It’s basically free as far as the big banks are concerned.
  2. On the other hand, you have the retail experience. The one that he has to go through or some small business for example. They either have to use cash which is very costly which takes a lot of resources to secure, to transport and to deposit.
    So in contrast to these big banks that pay basically nothing for instantaneous payments, you have the small business person who’s working on very small margins. They have to pay these big interchange fees and the payments don’t clear for two or three days.

His proposal in this paper is to say, what if we combine/permit these regular retail people to have access to interest-bearing Central Bank digital money, where the payments clear instantaneously on a real-time gross settlement system.

He also discussed a few words about Blockchain and shared database system and the idea of a central bank holding reserves in some security like crypto or Bitcoins and Gold.

A more detailed podcast from David Andolfatto on the Epicenter channel is given below:

 

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