The use of cryptocurrencies in the retail domain is underpinned by participants’ desire to decentralise the monetary system. Much of the motivation behind non-sovereign currencies stems from the 2008 financial crisis, when the perceived failure of central banks and regulators to protect consumers spurred considerable distrust in the financial system.
From a central bank perspective, privately issued cryptocurrencies are not currencies. The usability of these crypto-assets diminishes as they become speculative vehicles with volatile purchasing power. Central bank digital currencies, denominated in an established fiat currency, could overcome this fundamental barrier.
In the retail sector, a digital version of a sovereign fiat currency could bring great efficiency gains and policy benefits. Such an innovation could employ all the technical benefits of a cryptocurrency, while also inheriting all the underlying trust of a sovereign currency. But many questions must be answered before any significant progress can be made.