Last month the Federal Reserve published it's long awaited report on central bank digital currency, or CBDC. Here's my quick response.
The product that the Fed is sketching will probably work fine. That is, the technology will be perfectly functional, the buttons will do what they're meant to, and the funds will get from A to B.
From a marketing point of view, however, I think the Fed's vision for CBDC is incoherent. No one is going to use the stuff. It's very possible that the Fed hasn't considered this problem. Having never dealt directly with the public, it probably doesn't have much of a product marketing team.
The main marketing pitch (as far as I can extract from the report) is that a U.S. CBDC will offer you, the American citizen, money that is "free from credit risk and liquidity risk." As a liability of the Fed, CBDC would be the "safest digital asset available to the general public." In addition to safety, the Fed's CBDC would do all the other things that money does: you could send $50 to Aunt Sally and buy clothes at Walmart with it.
Important detail: one of the key design features of the Fed's CBDC is that it would be intermediated. Instead of being offered directly by the Fed, commercial banks will manage people's CBDC.
But how on earth do you market this product?
Here's an imaginary conversation between Fed Chair Jerome Powell and a potential customer who happens to be walking past the Fed.
POWELL: Can I interest you in switching some of your Chase deposits to CBDC?
PASSERBY: Nah, I don't want no CBD oil.
POWELL: Not CBD oil. CBDC. Central bank digital currency. It's the Fed's new product.
PASSERBY: (skeptically) Dunno. Is it better than Chase?
POWELL: (clears throat, looks at script) It's the safest digital asset available to the general public.
PASSERBY: (wide-eyed) Whatchoo sayin?! My Chase deposits ain't safe? Where's the nearest ATM?
POWELL: Relax, relax, sir. That's not what I meant. Your funds are perfectly safe at Chase. They're covered by government deposit insurance.
PASSERBY: Phew. But you said that CBD is safer.
POWELL: Both products are very safe, sir. You have nothing to worry about.
PASSERBY: (suspicious) So why should I switch?
POWELL: (reads from script again) While Americans have long held money in digital form, for example in bank accounts, a CBDC would be different because it's a liability of the Federal Reserve, not a liability of Chase.
PASSERBY: Ok, I think I get it. It let's me avoid my bank! Chase won't be able to $#@ me over anymore. Get me some of that stuff, man. I hate banks!
POWELL: Well, not quite, you see it's intermediated. You'll still need to use Chase to get CBDC. Your bank will handle your CBDC for you.
PASSERBY: Huh? If Chase is handling my CBD, what's the difference between CBD and my regular Chase account?
PASSERBY: I mean, they ain't going to charge me a fee for running it, are they?
Powell is stumped by the last two questions. That's because the Fed's CBDC just doesn't add up from a marketing perspective: it doesn't solve any of the passerby's problems. "Safe" is something that Americans already have thanks to deposit insurance. And the one thing that a CBDC might offer – it's not provided by a hated bank – has been taken off the table thanks to the Fed's decision to go with an intermediated model, for which banks will probably charge a service fee.
Maybe I'm being unfair. It could be that a smart marketing team can come up with a script in which Jerome Powell successfully convinces a passerby to switch from Chase to CBDC. But I just don't see it.
If a product can't be marketed, it either needs a rethink or it shouldn't exist in the first place.