Benoît Cœuré On Central Bank Digital Currencies And The Future Of Monetary Policy

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:16)

And I'm Joe Weisenthal.

Tracy Alloway (0:18)

Joe, we like to talk about money, don't we? And you know what I realized the other day? There's, well, we've spoken a lot about different types of money. So we've done cash, we've done historical forms of money, we've done a ton on Bitcoin, Ethereum, cryptocurrencies. We've even talked about that time you developed your own cryptocurrency, but there's one type of money that we haven't actually done an episode on yet.

Joe Weisenthal (0:44)

Tell me more.

Tracy Alloway (0:45)

So there is a type of money that sort of straddles the world of digital currencies and traditional forms of money, I think, and that is the Central Bank Digital Currency, or CBDC for short.

Joe Weisenthal (1:02)

Oh yeah, no, this is an interesting area because, yes, alongside the sort of emergence of private independent digital currencies, we have seen central banks all around the world do some efforts towards implementing their own or creating their own piloting projects of essentially having, yeah, digital versions of cash, I guess you would say. And I think China is fairly far along with its endeavors, but I don't think any of them have really taken off yet, but definitely an area that I think a lot of people are pretty interested in for a lot of different policy.

Tracy Alloway (1:44)

Yeah, that's the thing is you wouldn't necessarily expect this to be the case, but a lot of the digital currency exploration that's going on right now is very closely tied to monetary policy. And I have to confess, before we start, I have never entirely understood the concept of central bank digital currencies. I've never quite understood what the problem central banks are trying to solve is. And I've never quite understood how they will function alongside traditional cash and bank reserves and things like that. But I'm happy to say I think we have the perfect person to discuss all of this today and to get into a lot of those themes. We're gonna be talking with Benoît Cœuré, who was of course on the board of the ECB from 2011 to 2019

And he's now head of the Bank for International Settlements Innovation Hub.

And that group recently published a report on CBDC's, part of a sort of task force that involved a bunch of central banks exploring this topic. So I think it's gonna be a good conversation. And hopefully it answers some of the questions that I at least, and probably a lot of other people have had about central bank digital currencies for some time.

Joe Weisenthal (3:03)

Yeah, no, I'm really excited because I'm with you in that.

I too have had numerous questions about what purpose they serve, what the central banks see as the reason for launching them. So hopefully we can get a lot of questions answered. And also hopefully, maybe we can squeeze in a few questions about just the economy and monetary policy as well, because of course, Benoît having served at the ECB for so long, hopefully we get some thoughts about the state of the world today, which is of course still an extraordinary time.

Tracy Alloway (3:37)

Yeah, and I think weirdly there might be some natural overlap between digital currencies and what's going on right now in the global economy. So without further ado, Benoît Cœuré, thank you so much for coming on Odd Lots, welcome.

Benoît Cœuré (3:51)

Thank you very much for having me.

Tracy Alloway (3:54)

So in the intro, Joe and I both just admitted to not necessarily understanding digital currencies from central banks. Maybe just to begin with, you could sort of explain the concept and maybe one thing that's always confused me is if we were to see something like a digital dollar or a digital euro, how would that differ to, for instance, me holding a euro or a dollar in a traditional electronic bank account? What is it that makes that digital money different to align in my bank?

Benoît Cœuré (4:33)

So, yeah, I mean, these are excellent questions because you may wonder, I mean, we're living in a world which is already massively dematerialized.

Most of money, I mean, more than 90%, 95% of money is already digital. You might wonder why all of a sudden are we discussing a digital currency?

And so we're here to discuss central bank digital currency, right, CBDC. And so let me focus on the CBDC. That is a definition of CBDC. It's money that is issued by the central bank, meaning it's a liability of the central bank. It's not the liability of a commercial bank or any other player. It is digital. So it's not physical like bank notes. And it's not issued to banks as part of monetary policy as we know it, which is as bank reserves, right? So bank reserves is, if you think about it, it's money that banks have on their account with the central bank. It is digital. So it is central bank digital currency. And it has been existing for decades. So here we're talking of any liability of the central bank, which is digital, but not issued to commercial banks as part of the implementation of monetary policy, which mean two things. Either it is digital and issued directly to citizens. So it's the equivalent, digital equivalent of a bank note. And that would be entirely new.