The Orkney Slew and Central Bank Digital Currencies

Abstract

This Article on central bank digital currencies is motivated by a parable, The Orkney Slew, which is set in an archipelago. Based on the parable, we point out a significant economic market failure that exists in the cross-border payments realm. The analysis then focuses on real-world examples and the national security concerns, including for Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) and the continued efficacy of U.S. sanctions, associated with the rapidly evolving digital payments landscape. Many central banks around the world are now cooperatively experimenting with cross-border interoperability of digital currencies. These efforts are driven by the idea of building a global network—an infrastructure—to improve global supply chains and large value cross-border payments, as well as to mitigate national security concerns. While we do not believe that such an infrastructure is necessary at this moment, we do argue that cross-border experimentation is necessary