Both the US and Europe are moving to create digital money, but neither has the right idea about how to do it. The key is to allow “narrow banks,” which issue money but not credit, to keep their reserves in central banks and provide capped interest payments to coin holders.
LONDON—The debate over stablecoins and central bank digital currencies (CBDCs) may seem to be about technology, but it is actually about the architecture of money. It is thus not a new debate, but rather the reopening of an issue that most economists thought had been settled long ago. How this renewed debate plays out will have far-reaching implications—not least for determining whose money Europeans end up using.