Could a central bank create free citizen accounts that allow people to save their money and earn interest from the central bank's 'overnight rate' as an alternative to using retail banks as intermediaries? Could central banks deposit money into citizen accounts as a form of universal basic income? Are these ideas feasible? What are some of the benefits of this approach? What are some of the trade-offs or risks to this approach?

This is a powerful and timely question—many economists, policymakers, and technologists are exploring exactly this kind of proposal under the umbrella of Central Bank Digital Currencies (CBDCs), public banking, and monetary reform. We’ll start with economics (monetary theory first), and then expand out to philosophy, sociology, technology, and political economy to explore this further.

Economics

Post-Keynesian / Modern Monetary Theory (MMT) economics

Feasibility: Strongly supportive. MMT argues that sovereign currency-issuing governments (like the U.S. or EU) are not financially constrained in the traditional sense—they can create money to fund public programs.

Benefits: it bypasses commercial banks, reducing systemic risk from bank failures, it allows for direct stimulus (e.g., Universal Basic Income or “helicopter money”), and enables more precise control over interest rates and inflation.

Risks/Trade-offs: it could require significant political coordination and trust in government, the risk of inflation if too much money is injected without matching productivity, and it would disrupt existing financial institutions and credit creation mechanisms.

Mainstream / Neoclassical economics

Feasibility: Technically possible, but with serious caveats.

Benefits: financial inclusion that reaches the unbanked and underbanked, efficiency in monetary policy transmission if the central bank raises the overnight rate, savers would feel it directly.

Risks/Trade-offs: moral hazard if people expect perpetual subsidies, it could destabilize commercial banking if deposits flee to the central bank, banks lose a key funding source, and central banks would need to take on more political and operational responsibilities, which could compromise independence.

Austrian School economics

Feasibility: Deeply skeptical.

Concerns: central bank accounts represent an expansion of state power over money, potentially leading to surveillance and monetary authoritarianism. It diminishes the role of market-determined interest rates and decentralization in credit allocation.

Alternatives: decentralized digital currencies (like Bitcoin) offer a more “sound money” approach without needing central planners, and private banks should compete freely without government subsidies or interference.

Technology

Digital Infrastructure view

Many central banks (e.g., the ECB, Bank of England, and People’s Bank of China) are already piloting CBDCs—digital currencies issued by central banks.

Feasibility: High. Infrastructure like mobile payments, digital wallets, and ID verification can support this.

Cybersecurity view

Risks: Centralized citizen accounts become a high-value target for hackers or state-sponsored cyberattacks.

Mitigations: Use of blockchain or cryptographic auditing can enhance transparency and security—but not without trade-offs (e.g., scalability, latency).

Decentralist view

Central bank accounts could be built with programmable money, using smart contracts to automate things like UBI or conditional benefits. Caution: Programmability raises concerns about surveillance, control over spending, or the ability to “turn off” accounts.

Philosophy

Utilitarianism

If central bank accounts maximize well-being (e.g., reduce poverty, increase access to finance), then it’s a net good. The risks are acceptable if managed well.

Libertarian Ethics

Money should not be a tool of the state; people should have sovereignty over their financial lives. Centralized control over savings and UBI risks coercion or loss of autonomy.

Rawlsian Justice

From the standpoint of the least advantaged, having direct access to central bank services and UBI could promote fairness. A well-designed system would be distributively just.

Political economy & Sociology

Marxian view

Central bank accounts could be a temporary reform, but they leave the capitalist system intact. As long as private capital controls production, access to public money won't change class power structures. Also, be wary of the surveillance potential inherent in digital money controlled by the state.

Institutionalist view

Focuses on the path-dependence of financial systems. The change would face heavy resistance from incumbent banks and financial lobbyists. This could lead to a new model of “public option banking”, which might change how we think about banking altogether.

Sociology

This could transform the relationship between the citizen and the state. People might begin to expect the central bank to play a more overtly redistributive role. It raises questions about digital inequality, trust in institutions, and behavioral economics (e.g., will people save more if interest is fair and transparent?).

Summary: Is it feasible?

Yes, the idea is technically and economically feasible. But its viability depends on: institutional capacity, political will, public trust, and management of the trade-offs in risk, privacy, and economic disruption.

Benefits: financial inclusion, better monetary policy transmission, potential for UBI or stimulus without intermediaries.

Trade-offs: threat to commercial banking sector and liquidity / access to credit, surveillance concerns, inflation risk if not carefully calibrated, and it requires rethinking the role of central banks.

For reference:
Ricks, Morgan and Crawford, John and Menand, Lev, FedAccounts: Digital Dollars (April 15, 2020). Vanderbilt Law Research Paper 18-33, UC Hastings Research Paper No. 287, George Washington Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3192162 or http://dx.doi.org/10.2139/ssrn.3192162