Central bank - Digital currencies and gold

Central bank - Digital currencies and gold
Technological change has always been a driving force in the evolution of money. The barter system could only give way to commodity money because refining and standardization built trust in precious metal coinage. Paper notes gained acceptability because improved printing technology reduced the risk of counterfeiting. Throughout the history of money, technological change has helped to reduce the core challenges of transacting: ease, reliability and trust.
The world is poised for the next step in the evolution of money. Private cryptocurrencies have emerged as potential new mediums of exchange, although their long-term viability is yet to be proven. Central banks have also seized on the possibilities brought about by our highly digitized world with the development of central bank digital currencies. Although several different models for CBDCs are being considered, they all represent a step forward in the relationship between central banks and the currencies they issue.
CBDCs can potentially enable a wide range of new features. Money can become programmable, allowing policy-makers to incentivize certain spending behaviors that can optimize economic impact or address social concerns. The trackable nature of CBDCs can also help to deter financial crimes or the use of money to pay for illegal items. However, these features also touch on concerns about personal privacy and the freedom to spend as one sees fit. Although the exact function of CBDCs will only be determined as they begin to be used in the real world, their potential impacts on societies may be significant.
It is interesting therefore to examine the impacts of this newest form of money on one of the oldest – Gold. Gold functioned as money for centuries, a role which it lost only fifty years ago with the end of the Bretton Woods system. Nevertheless, gold has continued to thrive as a distinct asset class, a form of money that is outside the control of policy-makers.
With CBDCs on the horizon, discussions about privacy, monetary policy and programmability will inevitably emerge. Some may turn to gold to allay these concerns.
Increasing cross-border usage of CBDCs may lead to greater currency volatility, prompting some central banks to potentially build up greater gold reserves as a result. Money will continue to evolve with changing technology, but how these changes will impact how we spend, save and transact can only be understood over time.

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