Central Bank Digital Currencies (CBDCs)
Central banks already deal with electronic versions of money, but a digital currency could extend some services that central banks provide to financial institutions to the public at large. A broadly used digital currency could mean payments clear more rapidly and make banking services available to the estimated 1.7 billion people around the world who lack them. The People’s Bank of China, the most aggressive of the large central banks, has held trials involving e-wallets in a few cities. Transactions with central bank currencies wouldn’t be anonymous — that would make it easier for governments to crack down on money laundering and tax evasion and, as privacy advocates note, give them a powerful new tool for surveillance. The PBOC and other central banks sped up their efforts after Facebook Inc. and a slew of collaborators last year unveiled plans for a digital currency called Libra. For central bankers, currency isn’t merely an economic issue; it’s about sovereignty.
What if computer code could take the place of bankers? That’s the goal of the decentralized finance, or DeFi, movement that’s grown out of a decade of experimentation with cryptocurrencies. A DeFi world could be one where money flows more efficiently and cheaply, its proponents say, and would create new ways for savers to earn money on their holdings. Critics say DeFi is more likely reinventing the