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 What is CBDC?

CBDC

Having mapped out the constitution of our current monetary system, we now turn to Central Bank Digital Currency to see what the implementation of this new kind of money does to this constitution. The first task is simply to define what CBDC is. For this purpose, we invoke the three questions posed at the beginning of the previous section:

What counts as this kind of money? 

Who can use this kind of money? 

Where does this kind of money come from?

To answer these questions, we take the definition provided by Barrdear and Kumhof of the Bank of England as our starting point: By CBDC, we refer to a central bank granting universal, electronic, 24x7, national-currency-denominated and interest-bearing access to its balance sheet.

As CBDC we count deposit liabilities that are electronically registered on the central bank balance sheet. Access to these deposits is universal, which means that they can be held and used by principally all money users in the economy. The central bank issues these liabilities by crediting the accounts of money users. Summing up the issues of ontology, accessibility, and supply, CBDC is electronic, universally accessible, central bank-issued money. This definition allows us to fit CBDC into the Venn diagram of the three existing forms of money (The features of CBDC):

While each of the three existing forms of money is defined by lacking one of the features, CBDC is defined by no such lack. The diagram illustrates how CBDC combines all three features of cash, bank money, and central bank reserve money. This has profound implications for the discussion about the design and implementation of CBDC. It means that CBDC potentially competes with all of the existing forms of money. This competition automatically raises the question of whether CBDC should be a replacement or a mere supplement to any of the existing forms of money.

The features of CBDC

With regards to existing reserve money, this question is quite straightforward in so far as CBDC simply comes into being as a wider range of money users in the economy are provided with the opportunity to hold deposits with the central bank. The Barrdear and Kumhof definition takes it for granted that CBDC implementation implies universal access to the central bank balance sheet. It should be noted that it is indeed being discussed whether such access should be restricted to a more narrow range of non-bank financial firms. In any case, a two-tier system with CBDC and existing central bank reserve money makes no sense, so we can rule out that option.

This leaves us with questions regarding the relationship between CBDC and the two other forms of money. The two crucial questions are simple:

- Should cash be abolished with the implementation of CBDC or should the two forms of money co-exist?
- Should bank money be abolished with the implementation of CBDC or should the two forms of money co-exist?

Depending on the way that these two questions are answered, there are four different ways of combining CBDC with existing money each constituting a particular design model of the monetary system:

1) CBDC is complementary to both cash and bank money
2) CBDC as a replacement for cash and complimentary to bank money 3) CBDC as a replacement for both cash and bank money
4) CBCD as complimentary to cash and a replacement for bank money


It may be tempting to list the pros and cons of each of these models to arrive at an evaluation of which one is the most optimal. Such an approach, however, would ignore the political nature of the monetary system. As we have seen in the previous section, the nature of money may be viewed from very different perspectives. Each of these perspectives comes with a particular set of concerns and interests. In his analysis of the history of debt, Graeber aptly notes how 'money has no essence. It's not “really” anything; therefore, its nature has always been and presumably always will be a matter of political contention'. The ambivalent nature of money also plays into the discussion about changing the monetary system and implementing a new form of money such as CBDC. The way we think about money and imagine what money can and should do for us also frames our concerns and interests concerning the design of a monetary system with CBDC.