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I mostly agree, but the first big concerns that come to my mind are to do with security and how mistakes are fixed. With my (private) bank, I feel confident that improper withdrawals can be reversed, not least because I've successfully achieved such a result in the past. But if one day I check my CBcoin balance and it's not correct? Do I complain directly to the central bank? It strikes me that competent dispute resolution is not something that can be built overnight (though I suppose it could be absorbed from the top private banks).

Edit: grammar

> It strikes me that competent dispute resolution is not something that can be built overnight (though I suppose it could be absorbed from the top private banks).

What do you mean by "absorbed from the top private banks"?

Well it's all a bit vague in my mind, but the idea was that if a central bank coin is introduced, and if it achieves widespread use and popularity such that it becomes the default demand deposit mechanism, that the central bank could purchase the dispute resolution units from the private banks that presumably no longer have a use for them. The systems and human capital expertise to perform the functions would still exist, but it would be a question of whether they would be willing to work in the public sector instead of the private, and if the public sector could effectively manage them such that their performance remains acceptable.

From the description it sounds as if charge backs would be entirely possible given the suggested centralization aspect of the coin. Dispute resolution is relatively simple solution, especially as many banks will no longer require that sort of service.

"The benefits of current decentralized currency endeavours" are in the eye of the beholder; GBPcoin probably won't be good for buying drugs, it won't triple in value in one year, and it isn't deflationary Austrian money. But for normal payments I agree.

> GBPcoin probably won't be good for buying drugs

If they solve the anonymity problem (such that they can replace paper currency, which can also be entirely anonymous), then I'd expect that you could buy anything you want with it.

Subject to anti-money-laundering rules, of course, which usually apply to larger transactions.

> it won't triple in value in one year

That doesn't have much to do with the currency, but with the market, and volatility works both ways.

From their perspective, anonymity is the problem. Cash is only legal because it's grandfathered in. If cash was invented in 2009 it wouldn't be legal.

There are only 38bn USD banknotes (not dollars, banknotes) in circulation. That's very few. https://www.federalreserve.gov/paymentsystems/coin_currcircv...

...and 15bn EUR banknotes. If you think about it, they all have a serial number and it's easy to track them with a mere bigdata database. Most banknotes change hands only once before being registered in a bank again. The others are all suspicious. Keeping your money for a few months? Not a crime by itself but in most situations it's linked with laundering. Withdrawing every week from your ATM and cashed by the same drug dealer? They probably won't scream it over the roofs, but the FBI probably already uses this technique to track criminals.

If you think it's hard to track patterns in banknotes, it's ok, but it's less hard than tracking every single CB transaction across the world.

According to the reference in [0]: "As at the end of June 2013, there are 197,800 ATMs in use on the [Chinese] mainland, of which 100,700 or 55.28% have been upgraded with the serial number enquiry function. According to schedule, by late 2015, the serial number of every Rmb100 note withdrawn from banks by members of the public can be traced."

[0] https://news.ycombinator.com/item?id=9948081

Banks don't track which sn they are handing out each time. So, on deposit you just know the starting bank. And that's only if the depositing bank tracks sn which is far less common than you might think. Banks are more than happy to put deposited money back into circulation without that overhead.

The linked article, by a central bank employee, explicitly notes that users of cash value its anonymity:

> As a risk-free, interest-bearing asset, CBcoin would be preferable to bank deposits (and even paper currency, presuming anonymity concerns were addressed), encouraging households and firms to convert their bank deposits into CBcoin deposits.

While governments might not prefer anonymous payment methods to exist, they can still recognize that much of the money-using public appreciates anonymous payments at least some of the time.

> While governments might not prefer anonymous payment methods to exist, they can still recognize that much of the money-using public appreciates anonymous payments at least some of the time.

To the extent that "governments" don't like anonymous payment methods, that's mostly law enforcement/security agencies.

Central banks basically recognize that anonymous payments mechanisms will exist, and prefer that central bank currency fill that role, since the more non-central-bank money is used in practice, the less predictable effect central bank monetary policy has.

I would also argue that the inability to impose negative interest rates on cash is an even bigger problem from their perspective than anonymity.

Eliminating physical cash is not necessary to impose negative interest rates, even quite steep ones. By modifying the exchange rate between physical cash and bank deposits, the economic incentive to hoard physical cash is removed, allowing the central bank to impose an interest rate of their choice while still allowing citizens the flexibility of using their preferred payment methods over short time horizons. This piece[0] produced by the International Monetary Fund delves into the details about the steps banks will take to implement the necessary changes.

[0] http://www.imf.org/external/pubs/ft/wp/2015/wp15224.pdf

Wow, I didn't imagine the possibility of creating a different exchange rate for cash versus deposits. Surely this could not be implemented by the US central bank without new legislation? Many thanks for the reference to the IMF publication...just the TOC makes the hair on my neck stand on end :)

That is a bit silly. First of all cash is just a medium of exchange that we have refined to the most frictionless method possible. Without it we would just be exchanging some other tokens of value. Secondly Not everywhere has access to the tech that we do, such as credit cards and ATMs, ApplePay and Android Pay. A lot of the world relies on cash, so it would be ridiculous to suggest it would be illegal.

So the reason for central creating an institution which would end their present source of power would be what, in particular?

Edit: Fractional reserve banking is generally seen as a good thing by many economists. Many believe this allows central banks to stimulate and throttle the economy, ending recessions and leveling off bubbles. Why would central banks do anything to undermine this?

The claim made in the Economic Textbooks that the central bank controls the banking system is mostly incorrect - in fact most of the things you'll read in economic textbooks about the banking system are provably incorrect which is a large part of the issues with current economic theory - and with economists employed by central bank attempting to control the banking system.

From an economics point of view, what they are essentially proposing is to modify the banking system so that it resembles their models.

Their models are stylised, highly simplified, and have to be massively "callibrated" in order to match economic observations at all, and even then can only usually do so between financial crashes. (The part of economics that analyses business cycles hasn't discovered the Nyquist theorem yet.)

The best guess at what would result of this, is all the problems of centralised control, and none of the advantages of the existing system. Another way to think about it is a bunch of complete maniacs being allowed to run experiments on the live production system without any testing.

Although hopefully it won't come to that.

Virtual worlds already deal in this level of centralization. It's not unprecedented and economists have gotten great data from studying those. They have persistent, naturally occurring interactions with real world macroeconomies via item trading. Long story short, it's absolutely within reach to reorganize finance to resemble game design. That doesn't mean it's risk free - but success is possible and even likely with due diligence.

No virtual world has loans, or a banking system. But I would totally support creating one that does and letting economists loose on that.

> Another way to think about it is a bunch of complete maniacs being allowed to run experiments on the live production system without any testing. Although hopefully it won't come to that.

You mean like NIRP and QE? -_-' Like you said, these guys live in an textbook economic fantasy world.

Exactly. And you think this is going to be any better?

This is not proposing the end of fractional reserve banking. Money supply expansion happens through credit, and credit isn't going away any time soon.

The problem is that the normal "transmission mechanism" of monetary policy is to encourage credit, and both the commercial world and consumers are in a state where they either don't want or don't need credit.

sounds like you should read up on Taler: https://taler.net/

(anonymity is a primarily utility for criminals/tax evaders)

I don't expect central governments to jump ship primarily because of the arbitrary authority that tax auditing, among other powers, that it gives them, though

> anonymity is a primarily utility for criminals/tax evaders

And terrorist and child predators, right?