The ECB argues the internet needs actual cash
- Brady Dale, author of Axios Crypto

Illustration: Sarah Grillo/Axios
With the rise of the internet since the mid 90s, private money has become much more important than government issued money: that is, real cash. If central banks issued digital currencies (CBDCs), however, cash would go online.
Driving the news: The European Central Bank released a new working paper on CBDCs on August 16, that spelled out some of the ways that the world could change if central banks started offering internet native cash.
Context: The money in your bank account that you spend with your debit card is not the same as cash. That's private money. Cash is completely useless on the internet.
- It's just that, due to regulation and central bank guarantees, consumers might as well think of it as cash most of the time, because it works out much the same.
What they're saying: Private money has come to dominate the euro area as use of credit and debit cards proliferate, however "to ensure that public money can perform its function as anchor of the monetary system, it must be widely accessible and used," the authors write.
- "Accordingly, a digital update of cash in the form of CBDC could help ensure that the two‐layer system of public and private money can prevail in the future."
Meanwhile, they make several interesting observations about CBDCs, including:
- On bank deposits: CBDCs would be very likely to decrease bank deposits somewhat as certain users choose to just hold digital cash rather than entrust it to a bank. This would diminish credit available from banks, but it might also induce them to increase interest rates for depositors.
- CBDCs could pay: It would be easy to design a CBDC such that it had a variable interest rate for those holding it. This would give central banks a way to nudge inflation and consumers.
- On privacy: Consumers express some desire for financial privacy and market forces alone cannot be trusted to provide it to them.
- Cybercriminals: The authors note that digital cash gets stolen all the time. If CBDCs were stolen anywhere as often as cryptocurrency is, it could reduce people's confidence in the banks or in money itself.
- Moral hazard: If banks were less instrumental to the payment system, central banks wouldn't need to worry so much about protecting them. "Banks become less special," the authors write.
Be smart: Working papers are meant to drive discussion among policy makers, but they aren't policy.
- Experimentation around CBDC's is underway globally, and even The Fed has been studying and experimenting.
The bottom line: Facebook's Libra showed central banks that Big Tech had the potential to offer a private payment system with features central banks might not be able to match.
- Issuance of money is a key role of the sovereign. Whenever a state loses control of its cash, it becomes a little less sovereign.