Experts continue to voice widely divergent views on the security and effectiveness of Central Bank Digital Currencies (CBDCs).

“CBDCs do not change the definition of money, but will likely change how and when value is transferred over the next 15 years,” Bank of America analysts led by Alkesh Shah said, adding they have “the potential to revolutionize global financial systems and may be the most significant technological advancement in the history of money”.

The benefits of CBDCs are said to include efficiency and financial inclusion. Still, CBDCs aren’t without their risks. They may drive competition with bank deposits, and could lead to a loss of monetary sovereignty and inequality among countries globally, the note said.

Risks

“Cybersecurity threats are always a given,” says Jonas Gross, Chair, Digital Euro Association. “It needs to be ensured that the likelihood of exploits and hacks is limited. Further risk is a destabilizing of the financial sector via disintermediation or via accelerating bank runs. This is why the European Central Bank is thinking about limits on the CBDC holdings”.

CBDC issuance may not happen for over a decade in some counties, but central banks are expected to “adopt technological advances or risk irrelevance over the longer term,” the note added.

The stance contrasts with the opinions of a former Bank of England executive who wrote this week in the Financial Times that banks should not go ahead with launching CBDCs given their inherent risks.

“While some proponents argue that CBDCs would provide a payment option with zero credit and liquidity risk, those arguments miss that these zero risk features are not technology dependent.”

The Cato Institute

And The Cato Institute, a Libertarian think tank based in Washington DC, said in a January 2023 report: “A CBDC poses substantial risks to financial privacy, financial freedom, free markets, and cybersecurity. CBDCs do nothing to address the privacy and trust concerns that Americans cite as reasons for not wanting a bank account. While some proponents argue that CBDCs would provide a payment option with zero credit and liquidity risk, those arguments miss that these zero risk features are not technology dependent. Rather, they are wholly due to government guarantees – guarantees that could be added to any payment option”.

A large contingent of cryptocurrency proponents also oppose CBDCs, but for different reasons. “CBDCs are the product of the same broken financial system that has caused crisis after crisis, resulting in the widespread loss of capital and trust in the traditional financial model,” says Stefan Rust, CEO, Laguna Labs.

Foundations and alliances focused on CBDCs already exist at the national and union level.

“At the Digital Pound Foundation we’re passionate about ensuring this ecosystem of new forms of digital money is effective, diverse, and competitive, and enables access to as broad a range of participants as possible so that it has financial inclusion built in,” says Jannah Patchay, Policy Lead, Digital Pound Foundation.