Early View articles

Central Bank Digital Currency in Historical Perspective: Another Crossroad in Monetary History
Michael D. Bordo

Digitalization of money is a crossroad in monetary history. Advances in technology have led to the development of new forms of money: virtual (crypto) currencies like bitcoin, stable coins like libra/diem, and central bank digital currencies (CBDC) like the Bahamian sand dollar. These innovations in money and finance resonate with earlier shifts in monetary history: 1) the shift in the eighteenth and nineteenth centuries from commodity money (gold and silver coins) to convertible fiduciary money and inconvertible fiat money; 2) the shift in the nineteenth and twentieth centuries from central bank notes to a central bank monopoly; and 3) the evolution since the seventeenth century of central banks and the tools of monetary policy. This paper makes the case for CBDC through the lens of monetary history. The bottom line is that the history of transformations in monetary systems suggests that technical change in money is inevitably driven by the financial incentives of a market economy. Government has always had a key role in the provision of outside money, which is a public good. Government has also regulated inside money provided by the private sector. This held for fiduciary money and will likely hold for digital money. CBDC could make monetary policy more efficient, and it could transform the international monetary and payments systems.