Two Peas in a Pod: Cash and CBDCs

There is much talk and activity around Central Bank Digital Currencies (CBDCs) at the moment, particularly retail CBDCs. As one reads the papers and listens to the frequent webinars about them, it is striking that there is a requirement for CBDCs to replicate the performance of cash. And that is clearly proving a challenge.

The strengths of cash are well known, with privacy, resilience, financial inclusion, security being most commonly referred to. In addition, cash provides an alternative payment option that means private money providers cannot increase their charges and fees too much.

Equally, cash is also regarded as having weaknesses. Some argue it is expensive, most consumers like the convenience of digital payments, economists and the authorities see it as an enabler of tax evasion and criminal activity, and banks generate little profit from cash whereas they generate significant profit from the alternatives. There is also a sense that it is old fashioned.