The topic of central bank digital currencies has been getting a lot of play recently, including in a recent member viewpoint that we released on the cryptocurrency space. An excerpt from that report is as follows:
‘Earlier this year, the Bank for International Settlements (BIS) published results of a central bank survey related to CBDC activity…80% of surveyed central banks are engaged in some form of CBDC initiative, which includes use for wholesale (direct bank and corporate) and general purpose (consumer usage) cases. As previously mentioned, some of the impetus for the steep jump in engagement during 2019 was the Libra initiative. The CBDC working group at BIS obviously recognizes the value of close collaboration between central banks in development efforts. Certainly a standardized approach would enhance value, especially in the case of cross-border transactions. We might expect some level of compatibility, but given the amount of work already underway and perhaps a somewhat competitive environment, it seems unlikely in the short term. There are already calls for a single global CBDC, in effect “a global payment system should be equipped with an instant CBDC settlement facility in central bank money and it should replace all current payment/settlement arrangements.” As doubtful as this may be, it does suggest how much different things will look in 10 years.’
In this referenced brief posting at Finance Magnates, we see more of this activity.
‘The Digital Currency Institute, the People’s Bank of China’s digital currency wing, and the central bank of the United Arab Emirates have joined other Asian monetary regulators in a central bank digital currency project that focuses on cross-border payments. The project named multiple CBDC bridge was initiated by the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT) and was later joined by the BIS Innovation Hub Centre (BISIH)….The consortium is developing a proof-of-concept (PoC) prototype exploring the capabilities of the distributed ledger technologies (DLT) in real-time cross-border foreign exchange payment-versus-payment transactions. The regulators want the system to work around the clock across multiple jurisdictions.’
So as we pointed out in our research, China seems to be leading the pack in CBDC development, and others now trying to catch up. Commercial banks need to consider their go-forward strategy for wholesale payments, given the advancements in stablecoin, as well as increasing regulator knowledge around the ecosystem.
The mainstreaming of cryptocurrencies is gaining momentum through a series of new propositions and launches during the past 12-18 months along with upcoming product releases that will impact the space.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
