Central banks edge toward money’s next frontier in digital world

Money is edging closer toward its biggest reinvention in centuries as central banks start to embrace the creation of digital currencies.

With modern technology and even the coronavirus facilitating a global shift toward cashless economies, and alternative concepts such as Bitcoin taking hold, monetary policy makers are acting to ensure they don’t fall behind.

That might one day mean central banks could make currencies directly available electronically for people to spend with their smartphone, backed by the integrity of the state. Before that comes to pass, a power struggle will play out over the future of money, raising ..

The whole effort is defensive,” said David Dollar, a senior fellow at the Brookings Institution in Washington. Central banks are “trying to get back into the key position to control currency and the money supply.”

The most proactive country is China, conducting real-world trials of a digital yuan, partnering with the SWIFT global transactions system, and cracking down on payment services like Jack Ma’s Alipay to reassert supremacy over its currency. Elsewhere, officials from Frankfurt t ..

The idea behind central-bank digital currencies is that, unlike conventional electronic money, they aren’t bound up with regular banks. Nor are they debts, as on a credit card. And they certainly aren’t a privately created currency like Bitcoin.

They are cash created by the state, just as notes and coins are held directly in a citizen’s electronic “wallet” or phone app. There is no financial middle man.

In Shenzhen, the tech metropolis in southern China, citizens have already been testing out a trial digital yuan at Walmart, gas stations and convenience stores. In October, the central bank distributed the experimental currency via a dedicated smartphone app, which recipients use in a similar way to existing electronic payments.

One challenge confronting policy makers is that such a system offers less privacy than cash or other digital payments. That means weighing citizens’ discomfort  ..

In the euro area alone, lenders are sitting on some 11.4 trillion euros ($13.8 trillion) of household and corporate deposits, representing about a third of their funding. Migrating even a small portion of that to a central-bank currency would risk the stability of the banking sector and its ability to make loans to the economy.

“If you give easy access to central bank money, in an unlimited and seamless way, that can have an adverse effect on bank deposits,” said Benoit Coeure, former E ..