Really enjoyed your conversation with Mark [Carney] (as usual). I give him a B+ on his views on CBDCs. He gets credit for understanding that if nothing is done, then digitization means a disappearance of public money in the economy except for the banks. This has a lot of consequences, most of which are bad. There is no access for the unbanked, higher fees, lower privacy and more credit risk throughout the system.
Where Mark goes astray is by mentioning this oft proposed two-tier model for CBDCs, which is just a fallacy. Fiat money is a liability, and each unit can either be a liability of a central bank or commercial bank, it can’t be both. So if the Fed issues a digital dollar to the banks, and the banks issue private claims to their customers, we haven’t achieved anything, other than maybe a marginally better RTGS system. A real CBDC means the public can hold direct claims against the central bank, as it does today with cash.
Now, this is the point at which the skeptics say “what about disintermediation of the banks?” To that I say: so what? If lending via depository institutions (as opposed to via the bond market, money markets, etc) is a good, then the market will adjust to provide it. One way to think about the existing two-tier model is that savers are forced to subsidize borrowers. E.g., I want to make payments, so I have to open a checking account, for which the bank pays me no interest. The same model will exist with CBDCs, it’s just that banks will have to pay higher interest to attract deposits, or offer other value-added services.
CBDCs also allow lending via DeFi, which is more price efficient for savers and borrowers, so that will offset any increase in borrowing costs.