The Case Against Central Bank Digital Currencies: The real competition will be over who builds internet-scale financial markets infrastructure and the nature of its value systems.

• Author: Disparte, Dante Alighieri

Before the summer of 2019, the case for central bank digital currencies was not positively received by central bankers, judging by the sentiment of their policy speeches and the state of play of public sector digital currency innovation. Indeed, in these digital currency "before times," the typically invisible hands of central banks were busy dealing with macro-level policy issues, warding off inflation, and keeping employment and other stability targets in line--ostensibly the core competencies of central banks-while avoiding domestic political pressures to break their independence.

This comparative policy peace would be shattered by a white paper announcing the Libra project (a stablecoin payment network backed by the company formerly known as Facebook and twenty-seven other organizations), whose tagline "reinventing money" would cause a global frenzy, raise important questions about the boundaries of money, and, critically, accelerate a range of market responses from the farcical to the adversarial, geopolitical, and competitive. In keeping big tech at bay, 105 central banks began flirting with an even more perilous societal prospect, namely that central banks would become retail banks.

DIGITAL CURRENCY SPACE RACE

The Diem Association (nee Libra) was an accelerant of crucial market, policy, and regulatory responses about the future of money and payments. Not all of them were good and most ignored how the past is prologue in this debate. On the one hand, financial inclusion advocates underscored the possibilities of pulling 1.7 billion unbanked and 1.3 billion underbanked people into the perimeter of the formal economy with lower-cost payments. While perhaps oversimplified (especially in light of unevolved post-9/11 financial crime compliance frameworks requiring know-your-customer screening), superimpose the global penetration of messaging applications with mobile teledensity, and approximately one billion of the unbanked have access to low-cost, internet-connected devices. If those devices become part of a compliant payment endpoint, proponents argue, the bottom rung of economic mobility is lowered in a global parallel of the financial inclusion gains from welldocumented mobile money networks like M-Pesa in Africa. This is no longer an abstraction, as well-regulated dollar-backed digital currencies such as U.S. Dollar Coin (USDC), issued by Circle, are available in more than 191 countries via a network of open digital wallets.

Opponents of this idea, however, would argue--poor be damned--that issuing money is a sovereign activity and, therefore, the only solution is for central banks to digitize their national currencies. The boldest and most material of these CBDC developments was launched by the People's Bank of China following the Chinese government's accelerated national blockchain plans, which were also catalyzed by big tech fears and geostrategic motivations.

According to the Atlantic Council's GeoEconomics Center, 105 central banks representing 95 percent of the world's GDP are in some form of study on the risks and opportunities presented by CBDCs. These efforts often obfuscate a void of real-time gross settlement systems and open banking networks, which are perilously behind schedule in the United States and other major economies.

Tellingly, many CBDC designs, including China's, impose balance limits on digital wallets for fear of flightto-quality pressure on bank deposits. The question is thus raised: Should central banks disrupt the intermediated banking and regulated payment system in such a way, when these intermediaries are the conduits of monetary policy transmission?

The case for CBDCs is often framed...