A flawed argument for central-bank digital currencies

TotheircriticsCBDCCBDCCBDCCBDC central-bank digital currencies (s) are a fad—a solution in search of a problem. To their supporters s are a necessary response to a digitising world. Central bankers everywhere are studying the idea. Recently several have signed up to an argument in their favour: that s will be needed to anchor the value of money in a cashless financial system. It is a notion that could prompt governments to rebuild their banking and payment systems. But does it withstand scrutiny?The logic has recently been set out by the Bank of England, whose public consultation concerning s closes on June 30th. It goes as follows. People have the confidence to hold bank deposits (money issued by the private sector) in part because they know that they can at any time withdraw it as notes and coins (money that is issued directly by the state). But physical cash is declining in both use and usefulness. You cannot spend it on the internet; a growing number of shops insist on digital payment. Deprived of their convertibility into publicly issued money that is useful, bank deposits might lose their competitive advantage over emerging competitors that are similarly removed from public money, such as stablecoins or even foreign digital currencies.