George Selgin makes a pitch for the US Fed to facilitate the issuance of synthetic central bank digital currency (sCBDC) as opposed to the intermediated variant (iCBDC) that its recent consultative paper seems to advocate. In the synthetic approach, payment service providers (PSPs) offer digital currency (DC) that is fully backed by reserves held and ring-fenced from the PSPs' other creditors in Fed Master Accounts. In the intermediated approach, the Fed makes CBDC available to the PSPs who would act as the Fed's agents (i.e. as custodians and trustees of end user CBDC holdings).
Selgin notes that sCBDC will better promote DC diversity and innovation, because it allows for numerous, entirely distinct retail DCs, whereas iCBDC provides for a single DC only, albeit one offered at and administered by numerous private-sector firms. An iCBDC is likely to be a fairly, if not fully, homogeneous digital product, instead of a set of such products with different features designed to serve the needs of different clients. However, the Fed has so far been reluctant to do open up its Master Accounts to nonbanks, which would be required to get the maximum sCBDC benefits.
