Tag Archives: banking

Central Bank Digital Currencies (CBDCs) – does the emperor have any clothes?

5 Dec

I have been meaning for some time to write a blog on the subject of CBDCs, and am spurred to put finger to keyboard by an excellent article by Barry Eichengreen in today’s FT (5th December) – ‘CBDCs- a bad idea that won’t go away’.

I won’t repeat his arguments. But it is worth thinking for a moment about how a CBDC – say a digital £ – would actually work. It’s digital, so you will need open a digital account (with the Bank of England?) so you can buy your digital £s, and perhaps add them to your Apple or Google Wallet.

My basic problem with CBDCs is this: if you already have a bank current account, what is the difference between your digital £s and the £s in your current account?? For us happy souls who, in the UK at least, still enjoy free in credit banking, the answer is none.

Eichengreen’s article also deals with the financial inclusion argument. It is a little different in the UK, as major banks are required to offer a no-frills no fee no overdraft ‘basic bank account’ which does require credit checking. There are now over 7m of these in the UK.

Arguments about the costs and inefficiencies of existing bank payments rails are amusing, if nothing else, and Eichengreen is especially good on the cross-border issues. But when you start to think of the build and roll-out timescales and costs of CBDCs, you rapidly start to see a payments version of the HS2 fiasco. Will the Bank of England build something itself? Hopefully not, if the CHAPS experience is anything to go by (Chaps is the UK’s wholesale payments system for payments over £30,000). When it fell over for a day in, I think, 2016, the backup system was deemed too poor to use. Various enquiries followed, but it is not a happy precedent. Perhaps the Bank will outsource its build? Perhaps to Pay.UK, who are still trying to implement the New Payments Architecture first referred to in 2017.

But build and rollout are only part of the problem – the greater one may well be adoption. If people can’t tell the difference between a CBDC £ and their current account £, why will they alter their behaviour and use CBDCs?. What customer protections will be offered if you use your CBDCs to purchase goods and services? What will the dispute resolution process be?

Hence the Day Kaye picture at the top of the article. The ‘magic suit’ of CBDCs is about as useful as the emperor’s new clothes. Any do watch the Danny Kaye clip on YouTube: https://www.youtube.com/watch?v=VQQ3LCWZJd4

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Bank 3.0 – if branches are so yesterday, why are they so full?

25 Apr

So I’m sitting in the sun actually reading Brett King’s Bank 3.0 (rather than just blogging it’s arrived). It’s a good read – I’m on Chapter 3 – Can the branch be saved?- which rather begs the question as to whether you would want to.

I find all the arguments about the need for banking but not for banks very persuasive, and Brett has sourced his evidence well. But perhaps the sunny day helps me to drift off, & I remember a day a couple of years ago when I was in a bank branch (RBS) on a Saturday morning in a market town near us (Chelmsford UK, pop. 100,000).

I was there because there was a cock-up on arranging “floats” for a plant sale I run once a year. There are ten or so stalls, and the turnover on the day is about £2k – about half in cheques and half in cash. There was a new treasurer for the event, and he hadn’t arranged any cash floats for the stallholders, and couldn’t be reached on the phone. So off I went to the nearest market town to see what I could do.

To save you the unbearable suspense, I can tell you that it worked fine. After a rather exasperated counter guy had asked why I hadn’t arranged it in advance, & I had grovelled appropriately, the bags of coins and crisp £5 notes were duly handed over for a wad of cash I had extracted from the ATM. RBS went up several points in my estimation (albeit from a very low base – but that’s a different story).

But the real thing that surprised me was how full the branch was on a sunny Saturday morning of a bank holiday weekend in early May. I knew why I was there – but they couldn’t all be running competing plant sales with similar float cock-ups – could they? It seemed unlikely. Nor were they elderly pensioners unable to cope with new technology – it looked like a pretty representative cross-section of Chelmsford humanity. And it included some digital natives – at least one guy was playing with his i-Phone while standing in the counter queue.

I suppose my experience (admittedly two years ago) may have been atypical, but in my infrequent visits to my own bank branches (HSBC), there still seem to be plenty of people milling about.

So is this irrational behaviour?  Given the stats, the majority of the people I see in branches will have smartphones and/or tablets plus internet access at home & work. However, I’m not sure this makes their behaviour irrational. Like me, they may be dealing with the grubbier end of money transmission – cheques and cash, which, while on the decline, ain’t dying anytime soon. Witness the UK Payments Council’s (wise) decision to back off from announcing the death of the cheque. Or perhaps they were passing & popped in to check something (as I did recently).

Or perhaps they were attracted by the “store makeover” of may retail branches? This is the bit I just don’t believe. Brett has a good section on bank execs trying to remake their stores a la Apple. But if the parallel to a new game on a shiny new retina display is a flexible mortgage or special 1% bonuses on savings (Gosh! – a whole £10 on my £1,000 savings!) I think we can forget it. The trouble with banking is that it’s just too boring.

Brett quotes Chris Skinner’s phrase with approval – less branch banking rather than branchless banking. And how much less will depend on finding cost-effective substitutes for cash and cheques – for SMEs as well as individuals. Or (horror of horrors) a better alignment of prices for money transmission with the true costs.

The other change required is in the mental models bankers use – so they embrace the use of other channels (telephone/Skype/internet/mobile) as a substitute for face to face advice. And, as Brett recommends, realign their budgets so they address the security issues around these channels rather than simply saying they can’t be used.

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