The following article is based on my work regarding cryptocurrencies and monetary policies 

In their article, "The Case for Central Bank Electronic Money and the Non-case for Central Bank Cryptocurrencies," published in the Federal Reserve Bank of St. Louis Review in 2018, Aleksander Berentsen and Fabian Schär discuss the advantages and disadvantages of central bank electronic money (CBEM) and central bank cryptocurrencies (CBCC). The authors argue in favor of central bank electronic money as a digital equivalent of cash while suggesting that central bank cryptocurrencies may not offer significant benefits over current digital central bank money forms.

Berentsen and Schär begin by differentiating between CBEM and CBCC. CBEM represents a digital form of central bank liability accessible to the general public. In contrast, CBCC uses blockchain technology or distributed ledger systems for central bank money issuance.

The authors argue that CBEM could positively impact the efficiency of retail payments and improve financial inclusion. CBEM could offer a secure and efficient digital payment option, reducing transaction costs, increasing transaction speed, and lowering the risk of counterfeiting. Furthermore, implementing CBEM could reduce the need for physical cash, leading to decreased cash-related costs, such as printing, storage, and transportation.

In addition, the authors suggest that CBEM could enhance financial inclusion by providing the unbanked population with access to a digital payment system, thus promoting economic growth and development. By offering CBEM, central banks could ensure that all citizens have access to a risk-free and cost-efficient payment system, regardless of their financial situation or credit history.

However, Berentsen and Schär also acknowledge potential drawbacks to CBEM implementation. One concern is the risk of bank disintermediation. The public might prefer to hold CBEM rather than commercial bank deposits, which could lead to a decline in bank lending and negatively impact the economy. The authors suggest that this issue could be addressed by limiting the amount of CBEM that individuals can hold or by paying a lower interest rate on CBEM compared to commercial bank deposits.

On the other hand, the authors argue against using CBCC, asserting that it may not provide significant advantages over existing forms of digital central bank money. They contend that the primary benefit of cryptocurrencies is decentralization, which allows for censorship resistance and user privacy. However, these features may be undesirable for central banks, as they could hinder the implementation of monetary policy and facilitate illicit activities.

Berentsen and Schär also discuss the potential technical challenges associated with CBCC. They point out that current blockchain technologies may not be able to handle the transaction volume required for a widely-used CBCC and that the energy consumption associated with blockchain consensus mechanisms could be environmentally unsustainable.

In conclusion, the authors argue in favor of CBEM as a means to improve payment efficiency and financial inclusion while expressing skepticism about the benefits of CBCC. They emphasize the need for central banks to carefully consider the potential implications and challenges associated with these digital forms of central bank money before implementation. The authors argue that central banks should focus on providing secure and efficient payment systems to promote financial stability and economic growth while remaining cautious about embracing new technologies that may not provide significant advantages or may introduce new risks.

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