This chapter is devoted to global competition for monetary dominance. Correspondent banking, the backbone of international transactions, largely uses Society for Worldwide Interbank Financial Telecommunication (SWIFT), the main messaging system for cross-border payments. Correspondent banks play a role akin to a “central bank” in international transactions. They are trusted intermediaries of transactions on behalf of others. One problem is that correspondent banking leads to dominant positions of some banks in that essential service. There are economies of scale and network externalities here, hence the tendency for concentration and monopoly of power. Can digitalization help solve these problems? In principle, a network of interoperable central bank digital currencies (CBDCs) could be the solution. This would be a very different CBDC from the “retail version” described earlier. Its design would be different, along with the risks involved. We then discuss the geopolitics of money and the advantages and drawbacks of having an international currency that serves as reserve asset or invoicing instrument. At present, the dominance of the US dollar is unchallenged; neither the euro nor the Chinese yuan are plausible contenders. CBDCs are unlikely to change this status quo: The international role of currencies is determined by other factors, such as economic size, the stability of the currency itself, and the breadth of the underlying financial markets.

This chapter deals with “digital cash.” A central bank digital currency (CBDC) is a liability of the central bank toward a nonbank holder – an individual or a company. The technology, a web of interconnected computer terminals, is widely available. Central banks already host deposits from banks, so technically the CBDC would only be an extension. From an economic and financial standpoint, however, there is major difference, because the opening of the central bank balance sheet to the public would tend to lead to bank disintermediation. Banks extend the credit to households and firms; bank disintermediation therefore has a contractionary effect on credit and economy growth. This effect is stronger in financial crises, in which deposit holders tend to shift massively toward “safe assets.” A CBDC risks constituting a channel of deposit runs. Some central banks, therefore, plan to apply strict quantitative limits. There is a trade-off here: The stricter the limits, the lower the significance and usefulness of the CBDC. By and large, global central banks are still grappling with these problems, and research is ongoing. The limited experience of countries that have already launched a CBDC (China, Nigeria, Bahamas) is not positive. There has been very little demand for CBDCs because they provide very little value added over existing private means of payment. The jury is still out as to whether the most important central banks (Federal Reserve, European Central Bank, etc.) will actually go ahead and issue CBDCs.

Cryptocurrencies are reshaping money and payment systems in unprecedented ways. Catalysts include the launch of Bitcoin in 2009, the evolution of decentralised and centralised technologies, the announcement of Libra in 2019, the ongoing live trials of China’s Digital Yuan, and the COVID-19 pandemic and the related move to presenceless payments.This chapter considers the policy issues and choices associated with cryptocurrencies, stablecoins, and central bank digital currencies (‘CBDCs’) and emphasises that there is no single model for CBDC design. The catalysts reshaping monetary and payment systems challenge regulators. While Bitcoin and its thousands of progenies could be ignored safely by regulators, Facebook’s proposal for Libra, a global stablecoin (‘GSC’), brought an immediate and potent response from regulators globally. This proposal by the private sector to move into the traditional preserve of sovereigns– the creation of currency– was always likely both to trigger such a regulatory response and the development of CBDCs by central banks. China has moved first with its e-CNY– an initiative that may, in time, provoke a chain of CBDC issuance around the globe.