The Mistakes to Avoid on the Path to a CBDC

With momentum growing for central bank digital currencies, it’s essential that policy makers steer clear of potentially critical errors

As several countries experiment with central bank digital currencies (CBDCs) and dozens more consider whether to launch one, it’s clear that digitalization is coming to the world of central bank-backed money. This is an innovation that could promote easier and cheaper payments processes, greater competition, and increased financial inclusion, among other things. Yet policy mistakes could put those benefits at risk and create confusion and opposition.

To help advance the debate, our paper identifies six potential errors that could undermine some of the benefits of CBDCS:

• Siloed decision-making that fails to take adequate account of stablecoins, other digital assets, and the payments ecosystem

• Putting off the hard choices about policy objectives

• Ignoring other policy tools to reach these objectives

• Creating the “Swiss Army knife” of digital currencies

• Downplaying political constraints and forces

• Muddled communications

In the paper, we explain the importance for policymakers of proceeding carefully and deliberately to avoid these mistakes and choose a design process that’s tailored to meet the objectives of a digital currency.

Download the paper