CalleMargarita t1_izec5iu wrote on December 8, 2022 at 2:17 PM

How could a central bank digital cryptocurrency possibly ever work? How could a government possibly allow proof-of-work or proof-of-stake with a global distributed population potentially containing hostile foreign parties? And if they restricted it to supposedly non-hostile or domestic parties, wouldn’t that make it much easier to manipulate? Is there any reason a central bank would want to create a cryptocurrency besides FOMO?

novapbs t1_izfxuri wrote on December 8, 2022 at 8:39 PM

Another great question. I think you've nailed the answer already: building a central bank (CB) crypto would be for FOMO purposes. I don't even say that to mock! It's important for institutions to fiddle around with new technology, you never know what might be useful -- for instance, a blockchain-based system for interbank settlements could be a boring, nonsexy, but maybe significant application. The question to ask with crypto -- with any technology, frankly -- is: what can do I with this that I can't do another way? And what are the opportunity costs, as well as benefits, of using this new tech to accomplish that goal? And cryptos are a lot of downside and not a lot of upside from a CB perspective, for the reasons you spell out here.

BUT! I'm super interested in the development of CBDCs -- central bank digital currencies. There's a lot of really interesting things (from a policy perspective and an econ perspective) that you could do with well-designed digital cash that currently suck to do with existing mechanisms. A CBDC could be a big deal and do a lot of good -- it just wouldn't work the way (most) cryptos work today.

CalleMargarita t1_izgmshc wrote on December 8, 2022 at 11:29 PM

Thanks so much! I don’t know if you’re still responding, but if you are, what are some of the things that can be done with CBDCs that are hard to do now?

CalleMargarita t1_izee1tk wrote on December 8, 2022 at 2:31 PM