Central Banks Say Digital Fiat To Complement, Not Replace Cash


The idea that digital fiat will replace coins and bills may be conventional wisdom.

But there’s room for co-existence of cash and digital currencies.

The recently released report by the Bank for International Settlements (BIS) offers a general framework for digital currencies. And digital money, according to the BIS, will have to take its place alongside paper bills and coins.

The BIS noted of central bank digital currency (CBDC) that “a CBDC could provide a complementary central bank money to the public, supporting a more resilient and diverse domestic payment system. It might also offer opportunities not possible with cash while supporting innovation.”

The report and its objectives (with foundational principles for CBDCs) was done in collaboration between  the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the BIS.

And at a high level, according to the publication, the BIS noted that across the far-flung efforts being explored in various countries, “common objectives allow common principles to be agreed.” These principles include that CBDC  do not impede monetary policy and  “coexist with cash and robust private money.”

And in at least one cue for CBDC design to be taken from cash, the BIS stated that the digital currencies should be as “easy as using cash,” in transactions that can be done through tapping card or scanning a mobile phone, in a bid to encourage adoption and accessibility.

To be sure, recent PYMNTS research shows an increasing comfort level with digital payments, in general.  As reported in the latest “How We Will Shop” report, done in collaboration between PYMNTS and PayPal, 24 percent of all consumers said they had shifted at least one daily activity online, and plan to keep it that way.

Additionally, of the more than 2,100 consumers surveyed, 57 percent of consumers said that the availability of digital payment options would impact their choices of where to shop. As many as 40 percent of individuals are shopping online more often, which of course means they are shopping in stores less often. The pandemic, no surprise, has spurred the shift, especially in the retail space, where the share of respondents who reported switching to online transactions was up 28 points since March.

Alongside the central bank efforts, wrote the BIS, “Alternatively or additionally, a central bank could work with domestic private payment providers to ensure that the domestic payment system is as efficient and fit for purpose as possible.”

As has been noted in this space, the various explorations of central banks across the globe into digital currencies has been ramping up. BIS estimated this year that of 66 central banks polled, 80 percent were exploring CBDCs.

In an interview with Karen Webster published Monday (Oct. 12), Boston Federal Reserve Chief Operating Officer and FedNow Program Executive Ken Montgomery said that though the FedNow effort (focused on instant payments) is not expressly tied to a digital dollar, observers are “looking for a way to make immediate payments and make them a little more frictionless. Certainly FedNow is addressing the instant payment component of that.”

But as noted in the interview, there are questions, too, Montgomery said. Those questions include: How does the Fed get those digital dollars to move throughout the banking system? How does one then turn that into cash?

There may be a long road to CBDC issuance, requiring cross pollination of ideas across central banks. But  everything will be rendered in bits and bytes.

“Central banks should continue providing and supporting cash for as long as there is sufficient public demand for it,” contended the BIS.