Comment on “Design of a CBDC in a Highly Dollarized Emerging Market Economy: The Case of Cambodia”

Abstract

Scheme of the CBDC: Ueda and Hay state that the e-CNY issued by the People's Bank of China (PBOC) “adopts a similar two-tier system in which the PBOC issues e-CNY and retail banks distribute it through wallets set up by users … the PBOC admits e-CNY as its liability. Similarly, the NBC should admit the Bakong as its liability.” In reality, the e-CNY and the Bakong adopt contrasting schemes. With the e-CNY, while private banks provide user interfaces and wallets for retail users, money within such wallets is a liability of the PBOC—not of private banks backed by CB reserves, which is the case for the Bakong. Readers would benefit from learning that, here, the provider of the wallets differs from the issuer of money, that is, whose liability money is. Without recognizing this, one cannot fully grasp the typical two-tier system that provides a retail CBDC. Quasi-retail CBDC: Ueda and Hay's statement that “the NBC has been emphasizing that the Bakong is not a liability of the NBC, which is not true from the viewpoint of the underlying technology and economics” needs further clarification and consideration. Distributed ledger technology (DLT) accommodates various types of money on a common platform. It does not equate tokenized deposits with a CBDC or transform the nature of tokenized deposits into a CB liability. Furthermore, DLT adoption is neither a prerequisite nor a general feature of a retail CBDC. Economic researchers should be mindful of the differences between a retail CBDC (a CB liability) and a quasi-retail CBDC backed by CB reserves (not a CB liability), as the latter could carry risks that affect user behavior. Economics viewpoints vary depending on how we define economics; oversimplification should be avoided. Future course: Finally, Ueda and Hay argue that “[i]f the demand continues to be low like this for a few more years, the NBC should stop offering the retail Bakong … the government should not provide services that the private sector can provide.” To begin with, abolishing the retail Bakong and leaving retail payments in the hands of the private sector would not prevent dollarization and ensure efficient and stable retail payments in emerging economies. These policy objectives ought to be pursued by the public sector, not the private sector. Assessing the long-term effects of the Bakong today would be a prejudgment. It is not uncommon for payment infrastructures to become widely adopted with a lag due to existing conventions. Additional policy actions therefore may well likely be taken in the future. A conceivable future might involve continued efforts to establish network effects of the Bakong while proceeding with structural reforms and conducting sound fiscal and monetary policies so as to increase the credibility of the KHR, then shifting into KHR payments when deemed appropriate.