The digital dinar, and the one million question

I believe that central banks have been very late in issuing their official digital currencies CBDC and have given a huge opportunity for cryptocurrencies to nibble larger shares of digital transactions, whether in the form of payments or transfers, globally. The world is still in the stage of a great debate about the feasibility of issuing digital currencies, especially encrypted virtual ones, which only a certain group of people can access, own and use as a means of payment or investment, with special abilities to decipher codes and solve algorithms.

Once again, I say: Central banks are very late in issuing their official digital currencies. The first encrypted virtual digital currency was issued in 2008, which is Bitcoin, to be followed by hundreds, if not thousands, of encrypted virtual currencies. Central banks waited 12 years to issue the first official digital currency, which is the “sand dollar”. And it was by the Central Bank of the Bahamas in October 2020. It was followed by a few central banks in other countries whose number does not exceed the number of fingers of one hand, such as Nigeria in October 2021 and China in January 2022. Then came the first appearance of the Chinese digital yuan, e-CNY, for global users, during the Winter Olympics that began in January 2022 after more than a year of trial runs in about a dozen regions across China.

The whole matter is all about who has the power to issue money in its various forms in global markets, and who has the power to control their quantities and forms, and most importantly who has the power to control the entire money supply, i.e. liquidity, in global markets? The definitive answer is the central banks, if we want to control the financial and monetary stability in the economy.

The inevitable introduction of central bank digital currencies may be the historic and most fundamental change in the global financial system since the Bretton Woods Agreement. In any case, central bank digital currencies can completely renew the global financial system as we know it. It has the power to change the face of finance and ultimately the nature of money itself. With digital central bank currencies, fiat money will simply and truly become digital.

The delay in issuing official digital currencies means that encrypted virtual currencies are widely accepted as an alternative to official central bank paper money and electronic bank accounts, thus reducing the need for official cash needed to conduct transactions resulting from the real economy.  This is dangerous because it will reduce the size of central bank balance sheets and their ability to influence short-term interest rates and their ability to influence the business cycle in the real economy.

There is also an urgent need to accelerate the issuance of official digital currencies to enhance the trend towards the digital economy, as the continued absence of these currencies gives scope for the control of encrypted virtual currencies over the largest volume of transactions in the markets, especially in the absence of supervision by any official bodies, in addition to the possibility of using them for other illegal purposes, such as money laundering and terrorist financing.

And the one million-dollar question is: Should central banks continue to issue currency?  If the answer is yes, then it is because it is part of the symbol of the state and its independence, and because central banks are the lenders of last resorts; who else’s? So, as a first step, let us issue part of the currency issued by the Central Bank in a digital currency, meaning to speed up the issuance of the “Digital Dinar”, so that those dealing with the economy should see “official digital currencies”, as this step will enhance people’s confidence in the digital economy.  Let us resolve the answers to the questions posed: will the official digital current be at the level of individual use (retail) or wholesale, or both, and whether it will be closer to a digital currency or an e-currency, and whether it will be presented through the current banking infrastructure or through distributed ledger technology and blockchain.

But if the central banks will stop issuing currency, then let us leave the market to the private sector to issue official and encrypted digital currencies and create liquidity, but on one condition.  The condition is that the central bank should know instantly the volume of currency issued in the market and its issuer, in order to be able to manage liquidity in the economy and to give orders to the size of the appropriate monetary mass in the economy to be able to achieve monetary and financial stability, i.e., price stability in all its forms.

Let us imagine the time after 10 to 20 years, all transactions will be digital and all payments will be electronic in digital currencies and through electronic accounts and encrypted virtual currencies. I believe that encrypted virtual currencies will remain and those willing to deal with them are increasing as long as the official digital currencies are still not widely available. Those who wish to see official digital currencies issued by central banks are waiting anxiously, so let us speed up the issuance of these currencies, and let us speed up the issuance of our "digital dinar".

The author is economic, banking and financial expert based in Amman.