NEW YORK: The European Central Bank (ECB) and the United States Federal Reserve (Fed) have each said that they do not intend to abolish physical cash if and when a central bank digital currency (CBDC) is introduced. Recent policy briefs by the ECB and the Bretton Woods Committee argue against paying interest — positive or negative — on CBDCs. Policymakers should reconsider both stances. There are good reasons not only to support the early introduction of CBDCs but also to pay interest on them and abolish cash.

The US is a CBDC laggard. According to the Atlantic Council's CBDC tracker, CBDCs have already been fully launched in 11 currency areas, all of them developing and emerging-market economies, and 100 other countries are exploring the idea. These currency areas have embraced two common arguments in favor of a CBDC: that it can boost financial inclusion and improve the efficiency of payments and settlements.