Why Policymakers Should Rethink Central Bank Digital Currencies
Despite the risks and failures associated with central bank digital currencies (CBDCs), global policymakers continue to push for their development. In November, officials from the International Monetary Fund (IMF), Bretton Woods Committee, and Bank for International Settlements (BIS) called for governments to accelerate CBDC development. However, instead of wasting resources on this pursuit, policymakers should focus on more fundamental reforms that would create a freer financial system.
The Strange Timing of CBDC Calls
These calls for CBDCs come at a strange time. Many countries have already launched CBDCs or are researching them, but none of these projects have proven worthwhile. For example, Nigeria’s CBDC struggled to gain adoption and created cash shortages that led to protests and riots. The experience with CBDCs has shown government waste at best and government control at worst.
The Costs Outweigh the Benefits
Considering the failures and risks associated with CBDCs, it is difficult to understand why international organizations like the IMF, Bretton Woods Committee, and BIS are still advocating for their implementation. The costs of launching a CBDC outweigh the benefits. Instead of pursuing CBDCs, policymakers should focus on creating a freer and more accessible financial system through policy reforms.
Potential Reforms for a Better Financial System
There are numerous opportunities for policy reform that can transform the financial system in a way that benefits everyone. Strengthening financial privacy protections and establishing oversight of federal regulators are just a few examples. Reforming financial policy alone has the potential to create a cheaper and faster financial system. It does not require reinventing the money in circulation.
A Closing Perspective: Rethinking CBDCs
While there is no shortage of investment and effort in developing CBDCs, policymakers should not fall victim to the sunk-cost fallacy. Instead, they should consider the failures and risks associated with CBDCs and prioritize more effective reforms. By focusing on creating a freer and more accessible financial system, policymakers can achieve better outcomes for all.
Hot Take: The Case Against Central Bank Digital Currencies
Central bank digital currencies (CBDCs) have been advocated by global policymakers, despite the risks and failures associated with them. However, it is important to rethink the pursuit of CBDCs and focus on more fundamental reforms for a freer financial system. The experience with CBDCs has shown government waste and control, rather than proven benefits. Instead of launching CBDCs, policymakers should prioritize policy reforms that create a cheaper and faster financial system. These reforms can include strengthening financial privacy protections and establishing oversight of regulators. By reconsidering CBDCs and pursuing meaningful reforms, policymakers can achieve a better financial future.
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