The main central banks have been discussing the idea of implementing a digital currency. The rationale behind it escapes many citizens. Most transactions in the main global currencies are conducted digitally and one could say that the largest and most traded currencies, the US Dollar, Euro, Yen, British Pound, Swiss Franc, and the Yuan are already functioning as mostly digital money. So, what are central banks saying when they talk about a new and different digital currency? It is basically another step in the effort to gradually get rid of physical currencies, with an idea of strengthening control of the payments and make it simpler to trace the use of a particular means of payment. It is also aimed at competing with global cryptocurrencies. Most will state that the reasons behind the idea of a central bank digital currency are efficiency and improving the transmission mechanism of monetary policy.
Let us go point by point. When central banks say they want to improve the transmission mechanism of monetary policy, many of their messages are based on a wrong diagnosis: That there is an excess of savings that needs to be restrained. Central banks implement negative rates to try to push savers to take more risk, spend and invest more as if the reason why they do not spend or invest as much as central banks would want is the interest rate and not the challenged that households and businesses face in an uncertain economic environment. Citizens do not save because they are stupid or ignorant, but the opposite, because they understand that the economic environment is difficult and the attractive opportunities to invest are few. This does not mean that businesses and citizens are not spending and investing, they are, a lot. But central banks and governments place completely misguided and wrong blame on savings.
A solid economy is based on saving and prudent investment, not on debt and malinvestment. Therefore, it is wrong to continuously lower rates and attack savings. The economy does not improve by making it more fragile and indebted, rather the opposite.
The other point is the so-called efficiency. Central banks basically seem to want spending and control of monetary transactions at any cost.