Four major developments have challenged the status quo and reopened the debate
on the forms that money will take in the future: 1) use of cash as a medium of exchange has
declined; 2) distributed ledger technology (DLT) has led to the emergence of thousands
of digital cryptocurrencies; 3) some global tech giants are planning to provide private
digital currencies to their billions of users in the form of stablecoins; and 4) in turn, public
authorities are thinking about providing their own digital currencies to the general public.
• These developments raise questions about the implications for financial stability, the
transmission of monetary policy and financial intermediation. This Policy Contribution
focuses on the consequences stablecoins and central bank digital currencies could have.
• Stablecoins, such as Facebook’s Libra, differ from earlier generations of cryptocurrencies
in three fundamental ways. First, they would start with large networks of users and
global accessibility, two pivotal features for the critical uptake of a new currency. Second,
given the current limitations of DLT, including in terms of energy efficiency, new stablecoins
would rely on (more) centralised systems to validate transactions. Third, stablecoins
would focus particularly on reducing the volatility in the value of the new currency.
• These new features of stablecoins attempt to correct some of the critical deficiencies
identified in first-generation cryptocurrencies, which meant they did not acquire the main
functions of money. However, new stablecoins raise other questions and potentially create
new problems. One issue could arise from the more centralised (permissioned) validation
system, which could lead to collusion problems. Another issue could arise from the reserve
system that is supposed to ensure the stability of stablecoins, such as Libra, which could be
incompatible with the profit maximisation behaviour of a private issuer.
• Facebook’s Libra plan has been a wake-up call to central banks and governments
which, afraid of losing their monetary sovereignty, have renewed their interest in central
bank digital currencies (CBDCs) as a potential solution. CBDCs could make private digital
currencies less attractive and slow down their adoption.
• But there are other reasons to give the general public access to central bank liabilities.
One important reason to provide CBDCs to citizens is that if cash disappears, citizens will
lose direct access to sovereign money. Another benefit of the introduction of CBDCs is that
monetary policy could be strengthened by transmitting it directly to the general public.
• However, the introduction of CBDCs could also be disruptive and create risks. In
particular, CBDCs could have major consequences for financial intermediation. These
risks would have to be evaluated by policymakers before any decisions are taken.
• If CBDCs are introduced, central banks would have to carefully calibrate their properties
to minimise these risks. But, eventually, if these risks – and in particular the risk of
structural financial disintermediation – do materialise, central banks would have various
instruments to counter the
