Digital Money: Private versus Public

The financial system is undergoing fundamental change. Fintech and bigtech firms push the technological frontier, redefine business models and force banks to adapt. In parallel, new forms of money and alternative payment systems emerge. Alipay, Apple Pay, Bitcoin and new types of digital central bank money compete with traditional bank deposits. What are the macroeconomic consequences of these new means of payment? We address five key concerns that are frequently put forward:Aren’t digital currencies just a hype, now that crypto “currencies” like Bitcoin have proved too volatile and expensive to serve as reliable stores of value or mediums of exchange? This confuses things. Central Bank Digital Currency (CBDC) is like cash, only digital; Alipay, Apple Pay, WeChat Pay etc. is like deposits, only handier; and cryptocurrencies are not in any way linked to typical currencies, but they live on the blockchain.Doesn’t CBDC or “Reserves for All” choke investment by cutting into bank deposits? No, because new central bank liabilities (namely CBDC) would fund new investments, and this would not in any way imply socialism or a stronger role of government in investment decisions.Wouldn’t CBDC cut into the profits that banks generate by creating deposits? Less money creation by banks would certainly affect their profits. But if this were deemed undesirable (by the public, not by shareholders and management) then banks could be compensated.Wouldn’t “Reserves for All” render bank runs more likely, undermining financial stability? We argue that, in fact, the opposite seems more plausible.Aren’t deposit insurance, CBDC, “Vollgeld”/sovereign money, or the Chicago plan all alike? There are close parallels indeed between the different monetary regimes. In a sense, money is changing and yet, it stays the same.