There had been at least a two week hiatus from any CBDC payments discussions, so this posting at the WSJ renews the topic-of-the-day trend. In this case, the piece focuses on the importance of privacy implications in the testing and development of CBDCs. We have added commentary here and other places about what’s going on, so this piece is really nothing new, just a focus on one critical aspect of the ongoing global efforts underway.
‘Central banks must grapple with how centralized they want the design and governance of such payment systems to be. More centralized approaches, which can include a single database to record transactions, could enable more widespread surveillance, leading to abuse. They could also make governments more enticing targets for hackers. Decentralized concepts that often rely on distributed ledgers such as blockchains may improve privacy but slow payment processing. Any system carries the risk of technological glitches…
90 countries are exploring the idea, including more than three dozen that have begun developing, piloting or implementing virtual payment systems. Their models vary according to financial realities, such as the number of people without bank accounts, or policy goals, such as cheap and fast cross-border payments, said Josh Lipsky, director of the GeoEconomics Center at the Atlantic Council think tank.
The piece references Project Hamilton, the joint testing effort between the Boston Fed and MIT, which we also commented on a few of weeks back. The approach in that case is mostly around throughput and a design premium placed on privacy, at least through phase I. Contrast that with the e-CNY, which is blockchain-based and allows for full review of transactions, which according to this article, is basically assumed by the population there anyway. So just a way to keep in touch with ongoing thoughts in this developing space. Despite the EO recently issued by the White House, perhaps the real impetus behind U.S. development is in the quote from Fed Chair Powell.
“This technology is changing every single day,” Mr. Powell said, noting agility is key for central banks exploring digital currencies. “I don’t want to become a dinosaur.”
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group