Central Bank Digital Currency and the Agenda of Monetary Devolution

The creation of central bank digital currencies, or CBDCs, can be thought of as a form of “monetary devolution”. The devolution lies in that the power to create money is shifted at least in part from commercial banks to the state. This is particularly clear if the CBDCs take on properties of cash and are made available to the public at large. We discuss the agenda of monetary devolution in the United States and outline an alternative that incorporates the technological edge provided by CBDCs. This alternative would be the creation of wholesale CBDCs to serve as the monetary base to settle retail payments with stablecoins. Designed as such, CBDCs could preserve the current balance between private and public money. This alternative is worth contemplating, but its political appeal is severely diminished by its incompatibility with a program of persistent monetary financing of the Treasury.