At least 15 central banks are serious about getting into digital currency

The market for digital currency is down, but it’s certainly not out. Even if private cryptocurrencies are falling in popularity, it appears likely we are headed toward an era of national digital currencies that are backed by central banks.

Central banks are the institutions that set monetary policy for a nation, manage inflation, and act as the “lender of last resort”—such as the Bank of England in the UK and the Federal Reserve in the US. In fact, no fewer than 15 such central banks around the world are taking the idea seriously, and many others are at least exploring it, according to a recent report from the International Monetary Fund (IMF).

There are two main reasons for the trend, according to the report. First, new forms of digital money are “shrinking the role of cash.” Besides that, some central banks are interested in using the technology to reach the hundreds of millions of people who do not have a bank account or access to modern financial services. Finally, most central banks see the potential to reduce costs by replacing physical banknotes with digital ones. (See the table below for the rationales that central banks have given for their interest in issuing digital currency.)

It makes sense that central bankers are getting interested in digital currencies. New payment technologies, including cryptocurrencies, are changing the global financial system, and central banks need to understand how that will affect their role. “Money itself is changing,” said the head of the IMF, Christine Lagarde, in a speech accompanying the release of the new report. “Beyond regulation, should the state remain an active player in the market for money? Should it fill the void left by the retreat of cash?”

Lagarde’s comments raise a more fundamental question about the relationship between the citizen and the state, says Robleh Ali, a research scientist at MIT’s Digital Currency Initiative and a former researcher at the Bank of England. “Does the government have an obligation or a duty to provide risk free money to the general population? Does that duty persist after cash usage drops off?”

Sweden’s central bank, Riksbank, is wrestling with this issue right now.