Towards a world without bills?

Blockchain technology facilitates new virtual payment schemes

Recently several studies are exploring the possibility of central bank issuance of bitcoin-like virtual currencies that can replace banknotes. Until now, it was technically impossible to create an "exchangeable digital cash" anonymously between equals and without intermediaries, such as banknotes. However, blockchain technology (combining distributed information records and cryptography, allowing direct transactions between peers) facilitates these schemes.

The use of blockchain allows to modify certain characteristics of the cash: its circulation can be limited to a restricted universe (against the universal character of the notes); Identify the holders (as opposed to the anonymity of the cash); Or introduce the payment of interest (compared to the fixed nominal value of banknotes). Existing proposals pursue a number of objectives: to streamline wholesale interbank payment systems, to partially or totally replace cash (and thereby reduce their costs of informality, fiscal concealment and facility for criminal activity), to increase the capacity of monetary policies to set rates Negative interest and reduce the likelihood of banking crises.

There are four modalities of virtual currencies of central banks, corresponding roughly to these objectives: for interbank payments, with a restricted currency, identified and without interest; As a substitute for cash, with a universal, anonymous and interest-free currency; As a monetary policy tool, maintaining anonymity and introducing interest payments; And as an alternative to bank deposits, so that the entire population has a deposit identified in the central bank.

Central bank analyzes have so far focused on the last two options, the most disruptive. But both pose problems. On the one hand, the introduction of interest payments increases the capacity of monetary policies in the face of deflationary situations, but the legitimacy of central banks could be questioned by policies of financial repression that fall into the field of fiscal policies.

On the other hand, the creation of deposits in the central bank for the whole population implies a separation between means of payment and provision of credit, whose implications for the conversion of saving in investment are not obvious. It may increase financial stability, since it reduces the likelihood of banking crises, but it is unclear which alternative mechanism would transform demand deposits into medium- and long-term credit.

The advantages of less ambitious schemes are clear in efficiency and costs. But the balance between benefits and risks of the most ambitious variants is uncertain, which suggests a gradualist approach, starting with the introduction of a virtual currency for wholesale payments and valuing controlled progress towards more disruptive variants.