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Last year, Mark Carney gave a lecture on the future of work. In a similar vein, Mr Carstens also looks to the future – not of work, but of money; and, more broadly, the monetary system. Part of the BIS’s mandate is to serve central banks in their pursuit of monetary stability and to foster international cooperation in this area.. Money and payment systems together make up the monetary system, and should be seen as two parts of the same whole.
Throughout history, technological innovations have continually reshaped the monetary system, either by changing the nature of money or the workings of the payment system. These times are no different. The hype around bitcoin and its cousins has died down somewhat. But innovation continues. What seems new this time is the sheer volume of innovations and the fact that both components of the monetary system are targeted at the same time. Historically, changes to payment systems have been infrequent. Changes to the nature of money have been even rarer. But now, attempts to create new forms of money or to engineer new ways to pay appear almost weekly.
Mr Carstens has outlined some of the issues around CBDCs that central banks are evaluating as we move deeper into the digital age. The debate is not primarily about convenience and digitisation; rather, it’s about fundamental changes to both parts of the system that central banks oversee: money and payments.
So far, experiments have not shown that new technologies would work any better than existing ones. There is no clear demand for CBDCs on the part of society. There are huge operational consequences for central banks in implementing monetary policy and implications for the stability of the financial system.
Dr Whitaker once said that the role assigned to the central bank was “to be cautious, to be the warning light”. Central banks are indeed proceeding cautiously and considering all relevant issues. They will flash the warning light if needed. Central banks do not put a brake on innovations just for the sake of it. But neither should they speed ahead disregarding all traffic conditions. There is need to make sure that innovations set the right course for the economy, for businesses, for citizens, for society as a whole.