Straight Talk On CBDCs: Q&A With Hanna Halaburda Of NYU Stern Business School


Hanna Halaburda, associate professor in the Technology, Operations and Statistics department at the NYU Stern School of Business and former senior economist at the Bank of Canada, shares her thoughts regarding the risks and benefits of central bank digital currencies (CBDCs).

Global Finance: You noted recently that CBDCs could promote financial inclusivity by offering convenience and low transaction costs. But they also come with certain risks, including privacy loss and civil liberties erosion. Should privacy be a differentiator among the many government-issued digital currencies that are expected in the next 12 months?

Hanna Halaburda: Governments’ stated approach to privacy is a differentiator. Some don’t even attempt to claim privacy—China’s CBDC, for example. With the CBDCs already issued by the Bahamas and Nigeria, there was a desire for privacy and anonymity for smaller transactions. In our research, we focused on those countries that claimed that they want to preserve privacy.

We asked people on the ground to open digital payment accounts in those countries that advertise that they have anonymous accounts, and we never succeeded in opening an anonymous account. There was always a biometric requirement linking to an existing bank account or an identity number, so this promise of anonymity for small transactions is not being delivered upon.

GF: There’s talk that CBDCs could help central banks fight inflation. Your view?

Halaburda: When we first started thinking about CBDCs, the inflation rate was near zero in places, and the thought was: How do you remedy zero inflation? Do you do some quantitative easing? Maybe with CBDCs, you could parachute money into peoples’ wallets?

But this presumes a CBDC architecture that, in most cases, hasn’t been settled. Is the central bank going to be holding everybody’s debit card account? Well, that may not work at scale. Will CBDCs, then, be distributed through the banking system? Then how is that different from the current system? On the margins, yes, it could help with inflation, but not on a large scale.

GF: Many believe that China’s digital currency, the e-CNY, could be the first CBDC to market among large economies. If so, would that represent a threat to the US and other Western governments that use the USD as their reserve currency?

Halaburda: There are two tiers of currency. There is retail currency, and there are interbank transfers. When we talk about CBDCs, most of the discussion is about what central banks would call retail CBDCs. And this is different from settling interbank payments, which are already digital.

GF: What is the attitude of private financial institutions toward CBDCs?

Halaburda: What will be the impact on the banking sector? It depends on the architecture. Will the central bank issue CBDC directly to retail individuals, which means it could hold millions of debit cards? Or will it distribute digital currency through the banking system, as with banknotes and coins?

If the banking system distributes the CBDC, there is no major impact. It is just a third option, along with coins and banknotes. But it probably isn’t going to improve financial inclusion because if people don’t have bank accounts, it’s unclear how the CBDC will make them more likely to open a bank account.

GF: What about carbon footprint? Is there any analysis that CBDCs are greener or less green than cash, which has to be shipped around?

Halaburda: Yes, there is a carbon footprint with cash. There is shipping, printing that involves vast amounts of chemicals you don’t want in your water, and there’s the security. Highly armored trucks are required for shipping, and cash has to be stored in safes. And so on. So, there is a considerable cost in that. An electronic system may be cheaper.



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