This article is a transcript of the Buckingham Weekly Perspectives video.
In this episode of Buckingham Weekly Perspectives, Chief Investment Officer Kevin Grogan explores the concept of central bank digital currency (CBDC), the evolution of our fiscal system and the future of money.
Thanks to advances in technology, the world is increasingly becoming more automated. Our monetary system is no exception. In this episode of Buckingham Weekly Perspectives, Chief Investment Officer Kevin Grogan explores the concept of central bank digital currency (CBDC), the evolution of our fiscal system and the future of money.
Kevin Grogan: We had a question come in asking about the Central Bank digital currency. So today’s video is going to talk about what they are and how they might affect investors. So a central bank digital currency or CBDC would be the abbreviation can be thought of as a digital form of paper money. Meaning that it would be issued by the Federal Reserve and it is effectively a liability of a central bank. And Americans have long held money predominantly in a digital form. For example, money has long been held in bank accounts recorded as computer entries held on a commercial bank’s Ledger.
How does a CBDC differ from paper money?
Kevin Grogan: A CBDC though would differ from existing digital money because a CBDC would be a liability of the Federal Reserve just like paper money is while a deposit at a bank is a liability of that bank. So that’s the primary difference between what a CBDC would be versus what a deposit held that a bank is it’s who is that a liability of it’s either a liability of the bank in today’s world or a liability of the Federal Reserve like paper money is today and it’s important to note too that Federal Reserve payment technologies have evolved over time. So one example is back in the 1970s the FED develops the Automated Clearing House system or ACH system that allows for an electronic alternative to paper checks.
How have cryptocurrencies have pushed modern banking?
Kevin Grogan: And recent technological advances have ushered in a new wave of financial products and services including digital wallets Mobile payment apps and new digital currencies such as cryptocurrencies and stable coins. And these technological advances have led central banks around the world not just here in the US with the Federal Reserve but other central banks as well to start exploring the possibility of issuing a central bank digital currency. And so I think right now in terms of the State of Affairs, it’s very much and sort of a research exploratory phase. I don’t think anything is imminent here. And in fact the Federal Reserve at least in terms of their stance today has said they would not issue a CBDC without an authorizing law that’s passed by Congress and signed into law by the president. So for now nothing too much happening here other than discussion research and analysis so far. If you do have any questions on anything, I’ve covered today, please don’t hesitate to reach out to your advisor.
Kevin Grogan, CFA, CFP®
Kevin Grogan is Chief Investment Officer for Buckingham Wealth Partners, which is comprised of Buckingham Strategic Wealth and Buckingham Strategic Partners. And while it sounds like his job is all about the numbers, what he likes most about his role is the opportunity for him to collaborate every day with advisors, clients and prospects, helping others better understand the complicated concepts that will have a tangible effect on their financial lives. He is a member of the firm’s Investment Policy Committee and helps lead the firm’s investment strategy, portfolio management and fixed income teams.