CBDC Weekly: Public Leery of Digital Dollar, IMF Urges Protection for Kenya’s M-Pesa, Indonesia Eyes Wholesale Applications

CBDC, digital dollar, M-Pesa

The public comments on a U.S. central bank digital currency (CBDC) are running overwhelmingly against a digital dollar, according to a libertarian think tank analyst.

The Cato Institute’s Nicholas Anthony noted that the Federal Reserve released another set of public comments, bringing the total to 2,052, which indicated that 71% of the commenters are opposed to the idea. Another 21% are either neutral or unclear, compared with a bit over 12% in favor.

The 120-day comment period closed at the end of May. Comments in favor of the digital currency tend to come from large businesses working in finance, technology and regulatory compliance, Anthony said, suggesting that from reading their comments, many want “in on the action.”

That said, the major banking lobby organizations are stridently opposed, with the American Banking Association (ABA) and Bank Policy Institute (BPI) saying, in the letter’s words, a digital dollar “could present serious risks to financial stability and may provide few, if any, benefits.”

See also: Heyday or Doomsday? Regulators, Banks at Odds Over CBDCs

Meanwhile, Anthony noted that the Credit Union National Association (CUNA) said that “while there are no doubt opportunities for improvement, we believe most, if not all, [of these opportunities] can be addressed by innovations in the current financial services framework and through continued public‐private partnerships, without the introduction of a novel digital currency that could destabilize the system.”

Calling the digital dollar “a solution in search of a problem,” he pointed to The Clearing House’s RTP Network and Federal Reserve’s own FedNow as programs that can bring near-instant payments now, while a U.S. CBDC is at least five years off.

Call for Digital Euro Limits

A digital euro would need to have individual accounts capped to prevent a significant flow of consumers’ funds from banks to digital euro accounts, according to a new report published by the European Central Bank (ECB) on Thursday (July 28).

In the past, ECB board member Fabio Panetta has suggested that a €3,000 limit would be needed to protect banks from disintermediation, which would in turn cut off lending.

Read more: European Central Bank: Proper eCurrency Launch Could Take Years

IMF Seeks Safeguards for M-Pesa

Reports in several Kenyan publications said that the International Monetary Fund (IMF) has advised Kenya to ensure that a proposed plan by the Central Bank of Kenya (CBK) for a digital shilling protects both banks and the highly successful M-Pesa mobile payments service.

The CBK should make clear that “the intent of potential issuance of CBDC is to complement rather than substitute existing private-sector digital payment solutions, and affirm CBK’s commitment to an open, competitive payment system” the IMF said, according to The Nation Africa.

“Given Kenya’s financial sector’s remarkable progress in developing digital solutions, it is important that the paper emphasizes CBDC will ‘do no harm’ and does not stifle such welcome digitalization developments by taking away customers of banks and other digital finance providers, increasing the cost of financing for banks, or depriving banks of valuable information they obtain through establishing customer relations,” the IMF said, per The Nairobi Times.

Indonesia Explores Cross-Border Utility

Indonesia’s central bank is looking at ways to ensure that its forthcoming digital rupiah is usable for cross-border transactions, Bloomberg reported last week. Bank Indonesia Governor Perry Warjiyo also said on July 21 that it is on track to release the design of its CBDC by the end of 2022.

“The principle of digital rupiah will be the same as paper money which is to be the only legal currency for digital transactions in Indonesia,” he said. The country has banned the use of privately-issued cryptocurrencies for payments.

Related: Indonesia Central Bank Among Latest To Ban Crypto As Payment

Along with the retail rollout, Bank Indonesia is looking into how the digital rupiah can be used for wholesale transactions. It will share legal tender status with the physical currency.

The central bank plans to distribute it to larger banks and payments service companies, which will in turn be responsible for distributing it to smaller banks for retail transactions. Like many other countries designing CBDCs, it hopes this will prevent the disintermediation of banks by the central bank.

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