Much ado. There has been so much furor over Central Bank Digital Currencies lately. Central Banks, supranational entities like the BIS and the IMF, consultancies - all tout CBDCs as an opportunity for the monetary system and a response to bitcoin and stablecoins.

Fake cash. CBDCs are marketed as cash, but designed as digital payments. Just like traditional digital payments they will embed full KYC, traceability, and transaction reversibility. In addition, creative regulators are already discussing additional "features", such as limits to spending (towards preapproved categories) and negative interest rates “to boost the economy”.

Same as usual. From an end-user perspective CBDCs will be no different than existing digital payment means. Onboarding won’t be easier than your bank’s (remember: full KYC). And payment experience will be the same at best, but likely worse. Why? Let’s consider the three typical transaction scenarios:

  • In store payments already are fully paperless and super easy (tap your watch, card, …) - and if you have ever tried paying your groceries with an app compared to tapping your phone or watch, you already know which one is faster and easier. What would a CBDC wallet add to this experience?
  • Peer to peer payment apps keep flourishing (PayPal, Venmo, Satispay, …) and gain traction - and CBDCs promise no advantage over those either. 
  • Remote payments with credit cards are actually easier than ever (PayPal, anyone?) and instant wire transfers are just getting better and cheaper. Again, no reason for a CBDC to really improve that.

But merchants will love it! Nah. If -and it’s a big if- CBDC transactions will have no costs both for the user and the merchant, merchants will love them. Yes. But merchants will necessarily stay open for any payment method their customers love. Merchants hate PayPal and Amex’s high merchant fees, but users love the experience, and will keep using it. So, it all comes down to delighting users.

And things look quite gloomy on that side as well. 

As usable as any state-sponsored app. So, we should not expect any real functional benefit compared to existing payment options. But usability will definitely be worse. Why? Well, just check any state-developed apps and see for yourself. Market competition is a great driving force, and -guess what- central banks have no real competitors.

Better never than late. Meanwhile ECB’s Christine Lagarde says digital Euro should launch within four years. Well, considering the current rate of innovation, ECB’s digital Euro will be dead on arrival.

But but but. Staunch optimists say they would be beneficial anyways. How?

  • “Digital money from central banks is better than digital money from private banks!”. Why? Private banks can fail and theoretically clients can lose their deposits, while central banks cannot be insolvent, by definition - they print money out of thin air! But if you really think the private banking system will fail on such a massive scale that no deposit insurance fund will save you, you better buy gold, ammo and canned food.
  • “CBDCs could be good onramps for crypto adoption!”. Not really. Given their non-cash features (e.g. strict KYC framing, transaction reversibility, amount limits) it is unclear how a CBDC transaction would be faster or better than an instant wire transfer or a credit card.
  • "CBDCs will be programmable!" Yes, CDBCs can be programmed. For example, to allow you to spend money only towards pre-approved expense categories. How Orwellian.

A nice marketing device. Regulators and central bankers should gift us with real digital cash: anonymous and de facto unrestricted in its use. But they won’t: this would require acknowledging that the “war on cash” has already been lost to cryptocurrencies. But somehow they need to show the world that they are innovating, they are responding. Hence the flock of announcements, the press releases, the DLT research teams.

If any, the only achievement of "CBDC initiatives" will likely be to create copies of existing digital payment solutions, just worse.