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The Trilemma of Central Bank Digital Currencies

Countries from China to Sweden have a variety of rationales for seeking to modernize their payments technologies. Ultimately, however, central banks weighing whether to launch a digital currency must recognize that if they do, they can have confidentiality of transactions or financial stability, but not both.

PARIS – Central banks around the world continue to contemplate issuing their own digital currencies (CBDCs). Some have already taken steps in this direction. The People’s Bank of China launched a trial of its e-CNY in Shenzhen in 2020 and has since extended its use to other cities. The Sveriges Riksbank is testing its e-krona for commercial and retail payments. Even the relatively staid US Federal Reserve Board has issued a paper weighing CBDC pros and cons.