The more I think about this the less sense it makes, lol. Maybe I'm being dense...but if you have central bank money directly available to individuals in a digital format then what is the rationale for deposits? how would new money be created?
They do what they do now. Hit a couple buttons on a computer increasing the money supply by 10%, which in the long run reduces the value of all existing dollars in accounts by 11.1%.
Not quite. The Federal Reserve does issue new paper currency and coins, but that is only a small portion of the total amount of money in circulation. Something like 80-90% of all M1 money is the U.S. is typically held as deposits in commercial banks, and this money forms the basis of our fractional-reserve system that allows money to be created every time a loan new is issued.
If there's a cash-equivalent digital currency available directly from the central bank, there's no reason for people to hold their money as deposits which means less money for banks to lend out as mortgages, loans, etc. That reduces the total amount of money in circulation.