CBDCs still have not found their raison d’etre

CENTRAL bank digital currencies (CBDCs) are the bad idea that won’t go away. There are simpler, more straightforward ways of solving the problems that CBDCs are deemed to address. Yet upwards of 130 countries worldwide are exploring the currencies. If you are in search of a bandwagon effect, this is it.

CBDCs’ proponents champion them on financial inclusion grounds, as a way of providing digital financial services to the unbanked. Yet countries such as India have shown that there are more practical ways to do this. Provide residents with a unique digital identifier, mandate the banks to provide low-cost, no-frills accounts, and install a system to facilitate interbank transactions through mobile phones. Voila: problem solved.

Some will object that the payments rails provided by banks are inefficient. Transferring funds between banks can be costly and time-consuming, especially where data systems are antiquated and banks have market power.