Central Bank Digital Currencies, an Old Tale With a New Chapter
We consider the debut of a new monetary instrument, central bank digital currencies (CBDCs). Drawing on examples from monetary history, we argue that a successful monetary transformation must combine microeconomic efficiency with macroeconomic credibility. A paradoxical feature of these transformations is that success in the micro dimension can encourage macro failure. Overcoming this paradox may require politically uncomfortable compromises. We propose that such compromises will be necessary for the success of CBDCs.
This paper was prepared for a conference held in honor of Angela Redish at the University of British Columbia, October 14, 2022, The opinions expressed in this paper are those of the authors and not of the Federal Reserve Bank of Atlanta or of the Federal Reserve System. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.