There are those who tend to identify bitcoin, and other crypto assets, with the digital money that the ECB and its colleagues in other countries will end up issuing in a few years. But we are talking about quite different instruments.
The CBDC (central bank digital money, by its initials in English) is a new version of current money, in search of greater efficiency in payment systems. And here lies the first big difference with the
bitcoin and, in general, with current crypto assets, which are not money. At least for now. Because they do not fulfill any of the basic functions of it. Nor is it a means of payment, as it is not generally accepted, beyond exotic attempts as in El Salvador, which we will see how it ends. Nor serve as a store of value, because the fluctuation of its price is brutal and the risk immeasurable. And, for that very reason, it is not valid either as a unit of account.
They are intangible financial assets that do not accrue any monetary flow to enter, unlike fixed or variable income.
Another basic difference between the two is the official character of the CBDC compared to the independence and decentralization of bitcoin and the like. Perhaps this is the factor that is driving the emergence of crypto assets the most after a decade of very expansionary monetary policy in which issuing banks have flooded the markets with money. Causing fear of its devaluation, although in financially developed countries inflation has not risen until recently. What would not happen, in principle, with independent crypto assets. In bitcoin, for example, the supply is limited. Its defenders consider that it would protect them from the habitual maneuvers of the States to liquidate their debts. This is especially scary in countries with high inflation, such as some Latin American countries.
Of course, everything has its counterpart and here we find a new difference. Official currencies are safe money, backed by the central bank, and so will the CBDC. Even the financial assets denominated in them are usually covered by protection mechanisms such as deposit insurance. While crypto assets, on the one hand, have no intrinsic value, lacking flows, and their value depends exclusively on supply and demand. And, on the other, their helplessness is great in the face of any loss of value or irregularities in a digital world vulnerable to piracy …
Another big difference is that the CBDC will be transparent and its use could be known without difficulties. In this, of course, it differs even from current money because, although bank deposits leave a trace, the use of cash notes does not. That is precisely why there are those who accuse central banks of promoting greater control of the population (it is already known that conspiracy theories abound lately …) and seeking the disappearance of cash. It is true that – theoretically – it seems that it would be possible for all citizens to end up having an account at the central bank. But, if this were the case, it would be by limiting the balances to a small amount, so as not to distort the banking sector and preserve financial stability (the CBDC could also be implemented through the private banks themselves). Well, in front of that transparency, crypto assets are opaque and even this seems like a highly sought after feature on the one hand of those involved in its traffic. In fact, there are official bodies that accuse them of serving to launder money and cover up illegal activities.
Finally, what we cannot forget is that central banks – and governments – have regulation in their hands. They have the upper hand and, if they consider launching digital money, it is because they want to continue having it. Of course, it is hardly imaginable that they will be taken away and I believe that they will only tolerate private crypto assets, without taking action, as long as they do not threaten their monopoly. But, if their capitalization grows a lot, it is likely a deployment of rules that will try to stop them.
Carmelo Tajadura is an economist