JP Koning brings up central bank digital currencies (CBDCs), and explains the difference between account-based money and bearer-based money. Most economic accounts of CBDCs, he says, only talk about the former. However, society needs the latter for “robustness”.
In account-based money, payments go through a central authority (say, the issuing central bank) that verifies we have enough in the account and that we are who we say we are. Then it authorises and executes the transaction. Bearer-based money is more like cash. Onus on the execution lies with the user, and the ledgers are adjusted off the central issuer’s books (if I give you €20, it’s understood that it’s now yours and not mine).
A CBDC that only works with account-based money will be vulnerable. Technological glitches happen. Servers go down, settlement platforms can break and mobile telecommunications can have outages. Cash, on the other hand, keeps on working throughout.
So, says Koning, to avoid a step backwards in a future move to CBDCs, in which society is left worse off than it is today, we need to develop a digital form of bearer-based money.
I know, at this stage you’re probably screaming “Bitcoin! Bitcoin!”. But we’re talking central banks here, so…
Koning posits that a solution could be “digital tokens”. A central bank could issue digital tokens onto a distributed ledger, and verification could be outsourced to nodes spread all around the world. This sounds bitcoin-ish, but the central bank retains control of the issuance. An intriguing compromise.
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Favourite tweet of the day:
I've never related to a vending machine more in my life pic.twitter.com/xxQCNhlz5I
— Barbara Palvin (@BraPalvin19) June 21, 2017
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I might start a collection of blockchain “applications” that don’t really need blockchain. The fun part will be removing them from the list as I find out that, wait a minute, maybe the blockchain can help…
Anyway, here’s one that I don’t yet “get”: serving online ads. I understand that there’s a lot of fraud, and that the blockchain’s transparency can help with the trust. I also understand that a decentralized “marketplace” for ads could lower costs and spread the income.
But, given the sensitivity of certain messages and images, a totally decentralized ad serving platform will be a hard sell. Someone has to vet, and someone has to take responsibility if sensibilities are offended. If I were to host ads on this site (not going to do that), I would prefer the centralized, more expensive version to a decentralized one that might display pornography.
And, as this article in Digiday points out, there’s the transaction confirmation speed to worry about.
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Cookie dough!!! By the scoop!!!!! OMG!!! (Via The New York Times.)