Thanks, Chris — that's a fair challenge, and it goes to the heart of a question the post only gestures at.
Let me start by granting the strongest version of your case, because there are two things a well-designed CBDC would do better than a privately issued token. First, it eliminates credit risk at the instrument level. A CBDC is a direct claim on the central bank: no issuer balance sheet to analyze, no reserve-composition risk, no depeg scenario, no question about what happens in a redemption run. Second, it addresses the distribution question you're pointing at. Today the issuer earns the bill yield on reserves and the token holder earns nothing. A remunerated CBDC could pass the full policy rate through to the end holder instead of letting an intermediary capture that spread. Those are real advantages and I don't think they should be waved away.
Where I'd push back is on the framing of "part-privatisation." The privatisation already happened, some three centuries ago. In any fractional reserve system, the overwhelming majority of money in circulation is private money — commercial bank deposits, not central bank liabilities. Stablecoins don't introduce private money creation; they're the newest wrapper on a very old arrangement. And the sovereign still collects the underlying seigniorage: the reserves are Treasury bills, the government issues them, and the government captures the funding benefit. What the issuer earns is an intermediation spread, which is what banks and money market funds have always earned.
The more serious problem is what a retail CBDC does to the plumbing. Bank deposits fund bank lending. A CBDC competing directly for those deposits shrinks the funding base for credit, and it does so most severely in stress, when running costs nothing more than a tap on a phone. Central banks recognize this, which is why nearly every serious design proposal arrives with holding caps, tiered remuneration, or no remuneration at all. Note the tension there: the features that make a CBDC safe for the banking system are precisely the ones that strip out the interest passthrough that made it attractive to begin with. And if the central bank then lends those balances back to banks to plug the gap, it has effectively taken on credit allocation — a fundamentally political function.
There's a governance dimension as well. A programmable, state-issued retail ledger with transaction-level visibility is a capability that outlives whichever administration builds it. Reasonable people weigh that differently, but it isn't a design detail.
Finally, the innovation record. Stablecoins scaled from nothing to hundreds of billions of dollars in roughly a decade without a single intergovernmental working group. CBDC projects have been in pilot or preparation for years: the digital euro remains in a preparation phase, the e-CNY has struggled to displace incumbent private payment apps, and the eNaira never achieved meaningful adoption. That gap isn't an accident. Competing issuers iterate under pressure; a monopoly issuer doesn't. Private tokens also layer onto the rails the market already runs on — correspondent banking, money market infrastructure, existing settlement systems — rather than requiring a rip-and-replace of all of it.
So I'd argue the credit-risk and yield gaps you've identified are regulatory and competitive problems rather than architectural ones. Reserve quality, disclosure, asset segregation, and redemption rights are addressable through legislation like the GENIUS Act, and largely are being addressed. Yield passthrough is already being competed for — tokenized money market funds and yield-bearing alternatives exist precisely because a wide issuer spread invited entrants. That's the market doing something a monopoly issuer would have no particular reason to do.
Appreciate the comment — it's the right question to be asking.
Thanks, Chris — that's a fair challenge, and it goes to the heart of a question the post only gestures at.
Let me start by granting the strongest version of your case, because there are two things a well-designed CBDC would do better than a privately issued token. First, it eliminates credit risk at the instrument level. A CBDC is a direct claim on the central bank: no issuer balance sheet to analyze, no reserve-composition risk, no depeg scenario, no question about what happens in a redemption run. Second, it addresses the distribution question you're pointing at. Today the issuer earns the bill yield on reserves and the token holder earns nothing. A remunerated CBDC could pass the full policy rate through to the end holder instead of letting an intermediary capture that spread. Those are real advantages and I don't think they should be waved away.
Where I'd push back is on the framing of "part-privatisation." The privatisation already happened, some three centuries ago. In any fractional reserve system, the overwhelming majority of money in circulation is private money — commercial bank deposits, not central bank liabilities. Stablecoins don't introduce private money creation; they're the newest wrapper on a very old arrangement. And the sovereign still collects the underlying seigniorage: the reserves are Treasury bills, the government issues them, and the government captures the funding benefit. What the issuer earns is an intermediation spread, which is what banks and money market funds have always earned.
The more serious problem is what a retail CBDC does to the plumbing. Bank deposits fund bank lending. A CBDC competing directly for those deposits shrinks the funding base for credit, and it does so most severely in stress, when running costs nothing more than a tap on a phone. Central banks recognize this, which is why nearly every serious design proposal arrives with holding caps, tiered remuneration, or no remuneration at all. Note the tension there: the features that make a CBDC safe for the banking system are precisely the ones that strip out the interest passthrough that made it attractive to begin with. And if the central bank then lends those balances back to banks to plug the gap, it has effectively taken on credit allocation — a fundamentally political function.
There's a governance dimension as well. A programmable, state-issued retail ledger with transaction-level visibility is a capability that outlives whichever administration builds it. Reasonable people weigh that differently, but it isn't a design detail.
Finally, the innovation record. Stablecoins scaled from nothing to hundreds of billions of dollars in roughly a decade without a single intergovernmental working group. CBDC projects have been in pilot or preparation for years: the digital euro remains in a preparation phase, the e-CNY has struggled to displace incumbent private payment apps, and the eNaira never achieved meaningful adoption. That gap isn't an accident. Competing issuers iterate under pressure; a monopoly issuer doesn't. Private tokens also layer onto the rails the market already runs on — correspondent banking, money market infrastructure, existing settlement systems — rather than requiring a rip-and-replace of all of it.
So I'd argue the credit-risk and yield gaps you've identified are regulatory and competitive problems rather than architectural ones. Reserve quality, disclosure, asset segregation, and redemption rights are addressable through legislation like the GENIUS Act, and largely are being addressed. Yield passthrough is already being competed for — tokenized money market funds and yield-bearing alternatives exist precisely because a wide issuer spread invited entrants. That's the market doing something a monopoly issuer would have no particular reason to do.
Appreciate the comment — it's the right question to be asking.