DIGITAL CURRENCIES DIGGERS : MASTER GLOBAL ESSAY

ALL CENTRAL BANKS of the world are developing a data mindset to manage their respective economies. They are all exploring and practising ways to depict different types of data to convey, clear, powerful messages, reveal new insights and aid decision making.

NEW TECHNOLOGIES HAVE CHANGED THE NATURE OF MONEY many times in the past. The Lydian invented coins in seventh century BC ; paper money emerged in seventh-century China.

Credit and debit cards spurred a shift away from paper money and cheques. In the 2010s, smartphone based systems took off.

Use of cash is now plummeting; its retail of share transactions in ten of the world's biggest markets fell from about three-quarters to one-half from 2011 to 2021, according to McKinsey, a consultancy.

As the world goes cashless, central bankers have been pondering the next evolution of money. Some are keen on '' central bank digital currencies '' [ CBDCS].

Most money is already digital, so what is different about a CBDC? It's a liability of the country's central bank, rather than of a commercial bank. So CBDCS do not come with the run risk of commercial banks. But not all are the same.

China's e-CNY has programmable rules; Brazil's is only for retail use. Yet all major CBDCS are intermediated by commercial banks, easing the management burden for central banks.

In 2016, CBDCS were barely on the central-banking agenda. But things changed, for two reasons. First Facebook's announcement of a global digital currency called Libra in 2019, and the rise of cryptocurrencies such as Bitcoin, prompted fears among central bankers that the bank-based financial system would lose clout to digital alternatives.

Second, many countries grew enamoured with the idea of instantly settled cross-border CBDC payments to reduce fees and even sidestep the dollar.

Interest in building new cross-border payment methods grew after the West imposed sanctions on Russia for its invasion of Ukraine.

The Atlantic Council, a think-tank, now says that 130 countries, representing over 98% of the global GDP, are exploring a CBDC.

More recently, though, there have been murmurs of dissent. '' What actual problem would a CBDC solve?'' asked Neel Kashkari, president of the Minneapolis Federal Reserve. In May, Libra was scrapped because of the regulatory pushback, and cryptocurrencies have failed to gain wide adoption.

Cross-border CBDC projects have struggled to find sources of liquidity, outside traditional capital markets, and remain in the pilot stage.

After doing their homework, central bankers from Sweden and Denmark to Japan have expressed scepticism.

Sweden's Riksbank released a 900-page report in March arguing that the case for CBDC was weak, citing the nationa's already advanced payment system.

An economist at a major central bank observes that digital payment systems already provide most of the benefit of a CBDC.

CBDCS also pose new questions. For example, if they are safer than commercial-bank deposits, customers may flock CBDCS in times of stress, which might increase financial instability.

That is why major CBDCS have caps on holdings and offer no interest, relegating them to the sidelines. Technological innovation will continue, and some new and improved type of CBDC may yet become important.

But that is unlikely to happen in 2024. Expect the FOMO around CBDCS to continue to fade.

The World Students Society thanks Arjun Ramani, Global business and economic correspondent, The Economist.