Last week, I posted (here) about an important new article on the Fed and I’m doing that again this week.  Wharton Professor Christina Parajon Skinner’s Central Bank Digital Currency as New Public Money (forthcoming, University of Pennsylvania Law Review) is also a critical piece.  As the Introduction explains: “nearly every central bank around the world” is considering whether to create a central bank digital currency (CBDC).  Most payments are already digital.  Hence, it is important to realize that the impact of a central bank digital currency would be more than just payment digitization. 

Skinner states that “At least in the case of a U.S.-dollar CBDC, issued by the Federal Reserve, not only is a CBDC a fundamentally new monetary instrument, it also fundamentally alters – by weakening – the bundle of rights that State-issued money has heretofore conveyed to individuals holding public money.” (p. 9-10) And that “In many ways, as this Article will suggest, the nature of money implicates the very relationship between people and the State. In that sense, each nation’s decision about whether to pursue a CBDC will be highly dependent on its legal framework but also its political-economy values. Some States may well proceed with a CBDC while others might find it inconsistent with their political and legal mores and traditions. But in that case, the question of how to preserve a well-functioning monetary order will need to be addressed within the framework of international monetary law.” (p.11)  

Even more than with the question of who has access to a master account at the Fed (see here, here and here), widespread understanding of and debate about the potential adoption of a U.S.-dollar CBDC is tremendously important.  Such conversations are also incredibly timely. 

In fall 2022, the Federal Reserve Bank of New York (FRBNY) released its Phase One Report on “Project Cedar.”  As the FRBNY explains: “Project Cedar is the inaugural project of the New York Innovation Center (NYIC). It is a multiphase research effort to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC) in the Federal Reserve context.”  The Report “aims to contribute to a broad and transparent public dialogue about CBDC from a technical perspective. The report is not intended to advance any specific policy outcome, nor to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor to offer an indication of how one would necessarily be designed.” (p.3-4)

Here’s the abstract for Skinner’s article:

“Today, nearly every central bank around the world is considering whether to create a new form of digital public money, referred to as central bank digital currency, “CBDC.” Although CBDC is often discussed as a way to make payments more efficient, enhance financial inclusion, or reduce the risk of financial instability posed by stablecoins, the legal rights attached to CBDC remain poorly understood. This Article theorizes American public money as a bundle of distinct economic rights—namely, rights to popular monetary sovereignty; to property in value; and to qualified privacy. It then measures CBDC against the legal and conventional status quo to discern where CBDC adds to the monetary bundle-of-rights or takes a stick away. The Article argues that CBDC transfers significant monetary power to the State by weakening the individual right of issuance, conditioning the individual right to monetary property, and rendering monetary privacy rights scarce. It also, in so doing, empowers the central bank while weakening its independence.”