A Reserve Bank actually investigating if there is a Need or Use Case for a Digital currency. How novel!

OK China has a use case naturally, tracking it's citizens, but in the West we kind of look down on that. So it's nice to see someone in the west actually investigating if there's a use case out there, rather than just if it's possible to do it.

Just because you can do something, doesnt necessarily mean you should do it...

I'm really fascinated to see if they can come up with any good reasons for any of this to exist.

There's about $100 in my wallet from pre-covid times but the rest of my money is already digital...

What would be a real-world use case for a cryptocurrency that is not a scam?

The use cases for existing cryptocurrencies seem to be:

a) cutting out traditional financial institutions who take their cut from every transaction, and having a pure peer-to-peer transfer mechanism. But while this cuts out traditional gatekeepers, there are still transaction costs on a crypto network (sometimes quite high)

b) cutting out traditional financial institutions who take days to execute a transfer, and have an immediate (or quasi-immediate) transfer mechanism. As pointed out in the article, this can be improved at least locally within a country by upgrading the traditional banking systems. Something that also needs to happen internationally.

c) allowing poor people access to banking services. Traditional banks are only willing to deal with people who have some money, so they can extract fees. Many people in the developing world have no access to banking services eg loans. Crypto allows a person to use their mobile phone as a cash wallet without having an intermediary hold the money in custody. There are pluses and minuses to this, but of course when someone doesn't have a lot of money they might prefer total control over what little thy have than deposit it at a bank. People with thousands / millions, on the other hand, are probably happy to have that deposited or invested with a reputable financial institution for a reasonable fee. Having a mechanism where network users can do peer-to-peer lending in a controlled (non-loan-shark) environment could be a good use case.

d) anonymity, although in crypto by definition the accounts are public the account holder can be anonymous. There is some scope for anonymous money transfers to happen, especially for people under repressive regimes, but lets face it a lot of the people wanting the anonymity want it to avoid tax or for criminal purposes. This is pretty much by definition a use case that no user would sign up to a central bank cryptocurrency for.

e) inflationary control, ie not allowing the network to arbitrarily generate tokens and thus devalue existing tokens. I don't think any central bank digital currency could offer this or would ever want to offer this.

Basically, apart from point c) there isn't much that uniquely requires a distributed peer-to-peer financial network. Although I certainly hope that pressure from cryptocurrency and new 'digital-only' banks starts steering traditional banks offer such 'luxuries' as real-time money transfers and non-extortionate international transaction rates

As distinct from actual use cases, this is mostly a list of classic cryptocurrency booster talking points.

a) If I want to transfer a dollar to a recipient in another country using a cryptocurrency, I have to first buy a token (paying a transaction fee to the exchange), then pay a transaction fee to the network to send the token, then the recipient has to sell the token (paying a transaction fee to the exchange). Who knows what the spread of exchange rates will be but if they aren't closely matched to real market rates, someone would arbitrage it, so there's unlikely to be any upside. In addition, there need to be enough buyers and sellers of the tokens at both ends for the system to be balanced.

Also, "traditional" financial institutions are regulated and insured and the money in my bank account is safe as a result. The same can't be said for many (if any) of the "non-traditional" financial institutions that have sprung up around cryptocurrencies.

b) These time delays are a regulatory issue, not a technological issue.

c) "Banking the unbanked"... Cryptocurrencies have failed to achieve this. Meanwhile, there are already services that do achieve this without resorting to cryptocurrencies, such as M-Pesa.

d) No regulator is going to support anonymous digital money because of the potential for money laundering. Governments won't support it either for numerous reasons (terrorism, general surveillance etc.)

e) Central banks can control inflation (to varying degrees of success) because they control the circulation of money, i.e. by creating or destroying it. We moved off the gold standard because the lack of control turned out to be disastrous.

Good analysis, I mostly agree.

Re a) in a world where crypto is widely accepted, there is no need to transfer to/from any fiat currency, but of course the point stands that someone is taking a cut

b) that's news to me - I would guess that for large transactions in the thousands, or large volumes of transactions to/from an account that would be the case, but if there is regulatory reason that it takes 1-2 days for a small IBAN transfer that is clearly over-regulation

e) the theory of central banks controlling inflation by controlling the money supply is a nice theory. In practice this is abused by governments over-printing. True inflationary control means matching the amount of currency to the amount of goods and services on the market, so the price of goods and services is stable. But central banks aim for constant inflation (even if the aim is very low inflation) because the capitalist system depends on it (if your tokens are devaluing it encourages spending rather than saving). This is based on the flawed model that equates constant economic growth with higher living standard and happiness*.

Even if the model that aims for minimal inflation were a valid one, central banks still fail to stick to it, because every time there's a crisis, governments cannot resist the temptation to print money rather than take tough and unpopular decisions. It is also very unhelpful that many people do not know the difference between rising cost of living and inflation (which is only 1 out of many possible causes of the rise of the cost of living), and many journalists and politicians speaking on the subject also seem to not know the difference!!

*Although that's a completely different debate

... rabbits come to mind. Let's see how it goes this time round.