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Why Central Bankers Got Serious About Digital Cash

More than a fad.

More than a fad.

Photographer: Chris Ratcliffe/Bloomberg
Updated on

What central banks once sneered at, they’re now scrambling to master. Back when Bitcoin, the world’s first cryptocurrency, was seen as the province of anarchists and drug dealers, it was easy for the world’s central bankers to keep their distance. That changed in a hurry after Facebook Inc. proposed creating its own digital currency, Libra. Suddenly, the concept was seen as both practical and as a potential threat to existing monetary regimes. The central banks of China, the euro area, the Bahamas and others have been experimenting in the field, while others, including the U.S. Federal Reserve and Bank of England, are conducting research but not plunging in, at least for now.

The prospect of a coin usable for everyday transactions being put into the hands of Facebook’s more-than-two-billion strong user base. Most cryptocurrencies, such as Bitcoin and Ethereum, regularly experience wild price swings that make them unsuitable as a medium of exchange. Libra was conceived as a stablecoin, a flavor of virtual currencies that seeks to track the value of some low-volatility asset; the most popular stablecoin, Tether, aims to follow the U.S. dollar. Facebook’s proposal faces many hurdles, but the notion of an alternative currency used on a global scale was quickly seen by regulators as posing a threat to national sovereignty, privacy, financial stability and central banks’ ability to carry out monetary policy. Billionaire hedge-fund founder Ray Dalio has said that if he were a central bank, he wouldn’t allow any private digital currencies.