[danialtz]

The CBDCs started with a great idea: to share the stability and security banks enjoy today with all citizen and retail sector in digital format, as public layer similar to internet, between what we have today (cash) and what the future maybe (web3). At the same time, the way you have right to use cash today (almost) in the way you desire, you should have right and possibility to do so also in the digital world of future.

Today, most of the digital money is actually a private sector coin backed by fiat: you send paypal coin to another person, not real euro, and exchange it via another CC provider service. Cross-borders are order of magnitude more messy. They have similar problems like other stablecoins and cryptocurrencies while a few of their main value added are the solution to the challenges of cryptocurrencies: UX, and security among others. The private sector also has an incentivized and risk-averse view towards the basic right, e.g. inclusion and usage. The covid crisis showed that we cannot leave it to the private sector and banks among others to ensure the financial safety of people. Bank-runs happened because people do not have trust toward private sector, and regulatory actions are reactive at best.

So enter CBDCs. Central banks wanted to provide the benefits while retaining control of money flow in country. Same incentives of old age into the digital world. But the challenge is that by providing a real CB backed currency one disintermediates the banking system. One reason not to break the economy without understanding the effects and the other reason being CBs themselves are not high tech and prefer to piggy back available distribution channels. So, CBs started offering two-layer approaches, which is almost identical to the today‘s financial model, mostly a technological improvement at best. DLTs replace Swifts of the world. Accounts will stay accounts, KYC stays in place, maybe some tools would be given to not require accounts for e.g. <$1k etc. External sovereignty threats, e.g. e-renminbi, is also a whole different story, taken the topic to the extreme, while still acting as a strong external motivator.

One could ask then what‘s the fuss then? So, there is a technological demand to build CBDC, CBs have all incentives for themselves to build it to keep control, banks get to have a modern payment system for themselves, but what would change for the end user? Lower fees? obviously the view is biased towards modern world, e.g. in broken economies any order is better than none, some wallet is better than no bank, etc.

Eventually, CBDCs in the first roll out are an evolution of the current banking system. There is no fuss about it, but rather finally there is enough momentum to align multiple heavy stakeholders on one strategy.

disclaimer: the views are my personal views.