[jqpabc123]

Explain to me like I am 5

Out of sight, out of mind. You don't see it but private transaction processors (Visa and Mastercard) consume up to 3% of the transaction amount. Over the course of a year, this amounts to $50 billion removed from the economy. The merchant pays this --- and passes the cost along to you in terms of higher prices.

The money transfer system that deposits your check is old and slow and involves human labor. Unless you pay additional fees (banks love fees), it takes at least 24 hours for the deposit to be made and the system only operates during "banker hours" --- 8-5 on weekdays; no weekends, holidays or nights.

A CDBC will be fully electronic/automated with instant results and operate 24/7/365 at insignificant cost. Basically, it will speed up and put billions of dollars back into the economy.

Despite all the doomsday misinformation, no one has suggested replacing cash or checks. And no, crypto is no substitute for what a CBDC will do.

[hocuspocus]

> Out of sight, out of mind. You don't see it but Visa and Mastercard consume up to 3% of the transaction amount. Over the course of a year, this amounts to $50 billion removed from the economy. The merchant pays this --- and passes the cost along to you in terms of higher prices.

Visa and MC get only a fraction of the PSP fees. You can regulate this space and bring the fees down (like the EU did). But fundamentally, an electronic payment system isn't as simple as moving money from one bank account to another in an immutable way: that is extremely cheap already and further gains from using CDBCs would be marginal at best.

> The money transfer system that deposits your check is old and slow and involves human labor. Unless you pay additional fees (banks love fees), it takes at least 24 hours for the deposit to be made and the system only operates during "banker hours" --- 8-5 on weekdays; no weekends, holidays or nights.

> A CDBC will be fully electronic/automated with instant results and operate 24/7/365 at insignificant cost. Basically, it will speed up and put billions of dollars back into the economy.

No need for a CBDC to fix that. You just need to bring your banking infrastructure to the 21st century.

[jqpabc123]

You just need to bring your banking infrastructure to the 21th century.

ACH is the central component of the banking infrastructure that needs to be brought into the 21st century. And a CBDC is how you do it.

[hocuspocus]

It's just one way to do it. One unproven way at that, and with pretty serious ramifications.

[jqpabc123]

I'd love to see an alternative that doesn't look a whole lot like a CBDC.

The "serious ramifications" are all things that are not being proposed. No one is suggesting to make cash illegal.

[hocuspocus]

UK's Faster Payments, EU's SCT Inst, Brazil's Pix, India's UPI, ...

Shifting retail banking to the central bank brings a lot more questions than just worry about what happens to cash.

[jqpabc123]

EU's SCT Inst

   SCT Inst stands for SEPA Instant Credit Transfer scheme. It was introduced by 
   the Euro Retail Payments Board (ERPB) in order to enable rapid electronic 
   payments within the eurozone. In a nutshell, SCT Inst facilitates an instant 
   or near-instant clearing of a transaction between originator and beneficiary. 

Potato, po-tat-o.

ERPB = Central Bank

Credit Transfer Scheme = Digital Currency

Put them together and what do you get --- effectively a CBDC system denominated in Euros instead of Dollars --- minus all the hyperbola, misinformation and doomsday prophecy attached to CBDC on this side of the pond.

Shifting retail banking to the central bank

Nothing is being shifted. The existing system (ACH) is being modernized. No banks will be killed in the production of a CBDC.

[adolph]

An alternative to ACH need not push the technology down to the consumer but leave it at the interbank level.

[jqpabc123]

Yes, this is exactly what a CBDC will do.

You'll still spend USD just like before --- not CBDC tokens. The only thing the consumer will see is new capabilities and transaction speed that didn't exist before.

Basically, a CBDC will be used to add digital wallet functionality to everyone's existing bank account.

[adolph]

> A CDBC will be fully electronic/automated with instant results and operate 24/7/365 at insignificant cost.

Why would CDBC cost less if it is an improvement in value over the previous systems of credit cards, checks, and cash? From the TANSTAAFL perspective, debit, checks and cash aren't free, the cost is explicit in account maintenance fees or hidden inside the difference in interest rates between what the bank gets and what the account holder gets, plus the capital costs born by the receiver in facilities to handle pieces of paper. Since the fees are the same regardless of transaction volume, credit card has an advantage for consumers in that it is pay as you go and eliminates the personal facilities for check and cash handling.

CBDC transactions would not be costless, the question is how much, and form: flat fee, percentage, other socialization/cross subsidy. The question of how much will be driven by the cost of the service plus the transactors' perceived value of service over other mechanisms.

Likewise CBDC would not be truly instant but would have certain latency. On the payor side, for consumers the latency is an advantage--receive goods and service now, pay at the end of the settlement period or later if you pay for that service with interest charges. Why would a consumer choose CBDC if it doesn't include the loan to float between the transaction date-time and settlement date-time?

I'm not certain what the doomsday claims are, but there are tradeoffs to centralization. For example, getting de-banked becomes a heightened threat if there is no alternative. As an example, I'd offer the status of vendors psychoactive substances legal at the state but not federal level or those offering politically unfavorable goods and services [0]. Similar to the state of unbanked people everywhere, the increased reliance on more liquid payment forms brings increased risk of criminal predation since other market participants have de-risked though reduced cash holdings.

0. https://en.wikipedia.org/wiki/Operation_Choke_Point

[jqpabc123]

Why would CDBC cost less if it is an improvement in value over the previous systems of credit cards, checks, and cash?

Because it will be *truly* computer automated and operate 24/7/365 without middlemen processors charging outlandish fees that are hidden from the consumer.

[adolph]

CDBC just becomes the “middlemen processors” only in singular. Aside from a hypothetical utopia, there is nothing that says it won’t do the same thing as the current processors. It won’t be free—even if no human is employed to maintain it. Current, cooling, hardware, network are all not without cost. From your description the best case for CDBC is to play underfunded and undermarketed generic to Visa/MC’s brand name pharmaco.

[jqpabc123]

Current, cooling, hardware, network are all not without cost.

Yes but let's fact facts --- simple accounting on a computer is very cheap. Cheap enough that banks and the Fed can write it off as overhead --- unlike crypto mining which is intentionally designed to waste energy and money.

[adolph]

Fees

> removed from the economy

This is untrue. Bank fees are not placed into landfills, figurative, literal or otherwise. At best you can say that dispositive decision making power for the money is changed from the transaction participants to the transaction facilitators. One might say that the leaders of banking orgs spend it on the frivolous, like large boats. The boatwright’s children might differ as otherwise they’d be beggars.

[jqpabc123]

OK, removed from the *consumer* economy and placed in the hands of transaction middlemen.

[adolph]

> transaction middlemen

Who are in turn the consumers of other producers. The money doesn't get dumped into a never draining pool of gold in which "transaction middlemen" swim recreationally.

[amadeuspagel]

What I don't really understand here is in what sense you're suggesting a new currency. It seems that you're suggesting that the central bank replace Visa and Mastercard. But those don't have their own currency either.

[jqpabc123]

A CBDC is not a new currency for individuals to use. Everything you do will still be denominated in good ole USD.

A CBDC is digital currency that banks will use to process transactions between each other behind the scenes.

Right now; if I use Bank A and you use Bank B, there is no way for me to transfer money to your account without going through ACH (Automated Clearing House) which can take days and despite it's name, isn't really "automated" --- it was originally designed to process paper checks.

A CBDC will change this and make instant account transfer 24/7/365 possible. It will be like Venmo for everyone without any sign up --- you know, Venmo only works if both parties have signed up for a Venmo account and have funds deposited in Venmo. With a CBDC in place, the sign up will be an automatic part of setting up an account with *any* bank.

A CBDC will make it easy for you to split the cost of dinner with a friend while you're sitting at the table. Just use your phone to sign in to your bank account and make the transfer. Likewise, your friend will be able to sign in to his/her account and see that it's done --- instantly --- like magic, something that has never been possible before.

Basically, a CBDC will speed up and modernize the banking system.