Digital money and Central Bank Digital Currency (CBDC) - new opportunity, new challenge

• Published in: The International lawyer Vol. 55; no. 3; pp. 409 - 504
• Main Author: Walker, Professor G.A
• Format: Journal Article
• Language: English
• Published: Chicago American Bar Association 22.09.2022
• Subjects: Bank technology; Banking industry; Banks and banking, Central; Blockchain; Blockchains (Databases); Central banks; Crypto-currencies; Currency; Decentralization; Digital currencies; Digital currency; Evaluation; Financial services industry; Gold; International finance; International law; Laws, regulations and rules; Mesopotamia; Monetary policy; Silver; Technological innovations; Valuation; Writing; Mesopotamia
• ISSN: 0020-7810; 2169-6578

The power of new technology may, nevertheless, now lead to a fundamental restructuring of banking and financial markets themselves, particularly with the emergence of new private and public digital coins and digital market platforms.1 Markets have been subject to massive continuing changes and advances, which have substantially reformed banking and financial services and products.2 Centrally controlled government, or central bank, markets can now enjoy the technological capability to replace more traditional legacy private markets and services.3 The advent of digital systems has had a major impact on all aspects of banking and finance. Almost 30,000 private digital coins have since been created.9 The value of this market exceeded $1 trillion in the first quarter of 2021 and then grew to $2.06 trillion later in the year.10 Similarly, the valuation of large technology firms, such as BigTech leaders, including Apple and Microsoft, also rose to over $2 trillion.11 While the value of these coins has suffered from substantial variability and volatility, this suffering can be limited or managed through the use of stablecoins, which tie their value to another cryptocurrency, fiat currency, or commodity, with the most notable example being Facebook's Libra coin (now known as Diem), which was launched in June 2019.12 New forms of digital payment systems have also emerged, with over three billion account holders now using different forms of payment applications and electronic wallets.13 Private "CoinTech" has then evolved in competition with PayTech and other forms of financial technology (FinTech) applications (AppTech), including decentralised finance (DeFi), decentralised exchanges (DEXs), and most recently non-fungible tokens (NFTs).14 The most dramatic innovation within these markets may, nevertheless, be the adoption of new forms of official central bank digital currency (CBDC) or digital government coin (GovCoin or StateCoin).15 This has been referred to as the "new incarnation of money," which could lead to a major switch in power from individuals to the state, geopolitical disruption, and adjustment of capital allocation.16 This has to be treated with a combination of "optimism[ ] and humility," with central banks described as moving from being "the aristocrats of finance to its labourers. Central banks had to support the financial system over a decade ago in the wreckage of the global financial crisis beginning in 2008-2009 and then following the coronavirus crisis in 2020-2021.24 This intervention could be taken further forward with central banks effectively nationalising private money and banking systems through a process of highly centralised technological transformation and metamorphosis.25 This could be partly driven by efficiency and stability arguments and accompanied by a decline in physical coin and banknote use, although probably more simply due to the potential perceived loss of control over markets and market function and stability either to private operators or other governments that could otherwise ensue.26 This could result in fundamental change and adjustment. Metal coinage was introduced with the Lydian Stater around 650 BC, which was made from an alloy of gold and silver, with a large number of different types of metal coinage having been created subsequently, especially in new Greek city-states.33 The Persians would introduce gold Darics and silver Sigloi, with the Romans developing the gold Aureus, silver Denarius, and copper Sestertius.34 The Chinese created early forms of knife and tool coins around 1,122-221 BC during the Zhou dynasty,35 with later paper Feiqian (618-907), or "flying cash," during the Tang dynasty,36 and Jiaozi notes (960- 1279) during the Song Dynasty.37 The Carolingian Pound was introduced around 742-814 by Charlemagne or Charles the Great (748814).38 The English silver penny and pound sterling date from around 757796.39 The Florence Florin and the Venetian Ducal were introduced around 1252 and 1284.40 The Spanish Real and Peso date from 1350 and 1366.41 The Dutch Guilder and then Thaler, Mark, and Franc emerged between 1252 and 1360.42 The United States dollar was created between 1776 and 1792,43 with the European Euro between 1999 and 2 002.44 The modern Chinese Renminbi dates from 1948.45 Aristotle explained the functions of money in terms of acting as a unit of account, medium of exchange, and store of value, which has remained the principal formulation in economics over time.46 Aristotle, nevertheless, separately highlighted the importance of valuation in his Nicomachean Ethics.41 The two core functions of money, for the purposes of this text, are restated in terms of valuation and value, with care having to be exercised in considering the three economic functions of money in law.48 This division is also reflected in Joseph Schumpeter's distinction between money acting as both a mensuratum (means of measurement) and mensura (the thing measured).49 Because money is a universal item of financial value, the principal uses or applications of money can be explained in terms of valuation, savings or deposit, lending or credit, payment or exchange, investment or return, and risk or loss management.50 A massive edifice of writing has subsequently been erected to examine the subject of money over.