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Cash & CBDC: Can They Co-Exist?

Categories : Cash generates security, Cash has legal tender status, Cash is a contingency and fall-back solution, Cash is available to all users
May 18, 2021
Tags : Cash, Central Bank, Central Bank Digital Currency, Webinar
An increasing number of central banks are intensifying research on central bank digital currencies (CBDC). Theoretical papers assume that CBDC should emulate the features of cash and that the former would complement rather than substitute the latter. But is this feasible?
Martina Horakova

MH Knowlogy

This post is also available in: Spanish

Motivations behind the exploration of CBDCs among the 86% of world’s central banks vary significantly, such as from those who worry and prepare for a less-cash future (Sweden) to those who hope to stimulate a less cash-heavy economy (Eastern Caribbean). Nevertheless, what unites them, though with different emphasises across jurisdictions, is: firstly, the commitment to provide digital central bank money that emulates but not eliminates the physical central bank money, cash. And secondly, they aim to safeguard individual consumer privacy and protection as well as efficiency and resilience of national retail payments networks.

Consumer privacy and protection

Most recently, respondents, primarily private citizens, to the European Central Bank’s consultation on digital euro called for privacy as the most important attribute of a potential CBDC, followed by security. These are currently the unique characteristics of cash payments, which guarantees privacy and personal integrity. Cash transactions don’t collect any personal purchasing habits data, which could be used for marketing or surveillance, and are immune to digital fraud. Studies show that even for a token-based CBDC, which is the most explored version, the technological solutions, by involvement of ledger, and regulations, such as AML and KYC for any digital payments, cash-like anonymity and privacy are for now out of reach. ECB’s Fabio Panetta and Ulrich Bindseil argue that anonymity and privacy of user data will be guarded as central banks who are independent and public institutions have neither commercial nor surveillance interests.

This take implies large and ongoing investments by central banks in their cyber security hardware, software and top technological experts and training – to protect CBDC users and crucially its own hard-to-win-easy-to-lose reputation. In the case of cash central banks have largely been successful at lowering counterfeit fraud and risk at foreseeable technological cost. Cyber and digital payment fraud is constantly evolving at fast pace and so the associated technological risk and therefore the involved cost have an inherently fast, unpredictable and potentially exponential characteristics.

National cash cycle infrastructures are indeed also costly, yet these costs are largely fixed, known and/or easier to estimate and forecast. It furthermore assumes perfect Chinese walls between central banks and the state now and into unforeseeable future, yet central bank mandates and laws, as well as their capital levels and profit distribution to the government can and do get revised and occasionally governments just go ‘rough’.

Efficiency and resilience of national retail payments

The tail-event of the global Covid virus pandemic reminded policymakers that crisis of any nature do happen and this acknowledgment reinforces the necessity for securing operational resilience of retail payments networks for national emergency preparedness. In that sense, a central bank public digital payment network could serve as risk diversification option to reliance on private payment networks, in many cases monopolies or oligopolies, and exposure to their possible disruptions. In the same vein, cash already functions as a safety back-up to electricity or internet outages. For both CBDC to be able to fulfil this role acceptance and accessibility by and for consumers and retailers needs to be ensured.

Privacy and resilience of retail payments networks and confidence in money is viewed as public good provided by central banks, underpinning stable functioning of both the financial system and a democratic and (financially) inclusive society. Cash has and is available as anti-monopoly power and CBDC could also take this role, as complement to cash, as an answer to the rise of digital payments.

Save the date: 8 & 9 September

However, many questions arise to which CashEssentials plans to host a research seminar on 8 and 9 September and invites submissions of papers and presentations addressing the following topics:

The deadline for Submissions is 30 June. Papers should be submitted to




This post is also available in: Spanish