Digital Legal Tender: Implications for Monetary Policy and Financial System Stability
Panel 1, chaired by Professor Filippo Zatti, examined the implications of conferring legal tender status on digital money for monetary policy and financial system stability. Dr Christian Pfister opened with an economic assessment of retail CBDC in the euro area, arguing that the much-debated risks for monetary policy and financial stability are overplayed, while the fundamental questions — whether there is a market failure justifying a retail CBDC, and whether it is the central bank's role to provide payment instruments to the public — remain overlooked. Professor Christos Gortsos turned to the digital euro proposal, questioning the appropriateness of its legal tender status and highlighting the tension between mandatory acceptance rules and the public's limited financial literacy. Professor Seraina Grünewald reversed the usual perspective, presenting work in progress — co-authored with Philipp Hecklin (University of St. Gallen) — on retail CBDC not as a risk but as a potential new instrument of monetary policy.
The panel then broadened its horizon. Professor Marko Dimitrijević reflected on monetary sovereignty and the social theory of money, warning that legal tender conceived as a barrier against alternative currencies collides with open monetary innovation. Professor Douglas Arner brought in the cross-border and geopolitical dimension, identifying payment system arrangements and safe asset market depth as the decisive factors for any currency aspiring to international use. Professor Heng Wang closed with the governance of digitalisation disputes, mapping the old and new actors — central banks, commercial banks, technology suppliers, users — entangled in cross-border CBDC networks. The chair adjourned the session leaving the panellists with a question: if you were a legislator, how would you address digital legal tender?
“Substantial issues are most of the time overlooked: is there a market failure in the payment industry which would justify launching a retail CBDC? Is it the role of the central bank, instead of the private sector, to provide payment instruments, or money, to the public? … Legal tender should not be extended. It has now turned into a barbarous relic.”
— Christian Pfister
“What we want to look at is how retail CBDC could be an opportunity for monetary policy. So we are turning the perspective here.”
— Seraina Grünewald
“he area where the greatest focus is going to be needed is twofold: one, the payment system arrangements, and two, debt market liquidity — in particular, how one can deliver the sufficient size and scale of a safe asset market necessary to support a major currency alternative.”
— Douglas Arner
“People do not know what legal tender is. If you give the legal tender status to the digital euro, it means that there will be mandatory acceptance rules — so people may not know that, if they were to be paid by a digital euro, they would have to accept.”
— Christos Gortsos
“Even the Roman jurists once noticed that the utility of money depends not just on the nominal quantity of its units — it also depends on public belief. Some principles of the social theory of money are still present these days.”
— Marko Dimitrijević
“The disputes are likely to involve central banks, commercial banks, technology suppliers, and users: there could be old players like commercial banks, and new players like tech companies..”
— Heng Wang