In the race to bring central bank digital currencies (CBDCs) to market, central banks’ efforts and progress run the gamut from exploratory (such as in the U.S.) to fully-launched (such as in the Bahamas).
As to where those digital currencies may first find favor, tied to the “low hanging fruit” that can spur wider acceptance, cross-border payments may offer wide potential.
To that end, the Bank for International Settlements published a paper that delves into how transactions beyond the domestic setting may be positively impacted by the development and deployment of CBDCs.
“Cross-border payments are inefficient, and technology could play a role in making them better,” noted the paper. But at the same time, “Cross-border payments are ever more vital for economies, especially transactions underpinning tourism, eCommerce and remittances, which have grown substantially over the last decade.” The BIS wrote that today, most cross-border payments are settled through correspondent banking arrangements. “Currency conversion typically involves several parties,” and so the payments that are netted out typically are smaller, when they involve several intermediaries (and fees).
Interoperable CBDCs, according to the BIS, can improve those flows through the development of “multi-CBDC” arrangements.
“Multi-CBDC arrangements are preferable to proposals that involve the creation of a global private sector global stablecoin. Instead, they look to foster a diversity of convertible national currencies and strengthen monetary sovereignty in the digital age,” according to the report. The interoperability would come from the development of similar regulatory frameworks, market practices, messaging formats and data requirements, interlinking systems and a multi-currency payment system, said the BIS.
Indonesia In ‘No Hurry’
Yet this is not to say that CBDCs have found universal acceptance among all central banks. As reported, Indonesia’s central bank has said that it is in “no hurry” to launch a CBDC, as noted by the Jakarta Post. Bank Indonesia (BI) governor Perry Warjiyo said in a late February online discussion hosted by CNBC Indonesia, as reported by the Post, that it was “working with other central banks and conducting studies” for future creation of the CBDC. Wholesale CBDCs would be issued to financial institutions for businesses-to-business (B2B) transactions and retail CBDC for the public to use in businesses-to-consumer (B2C) transactions.
Other countries have been detailing explicit timeframes for their own CBDC issuance.
Jamaica, for example, will pilot a central bank digital currency in 2021 and begin rolling it out in 2022. Jamaican government minister Nigel Clarke has said the CBDC would be exchangeable with the physical Jamaican dollar on a one-to-one basis. Clarke said businesses will be able to make payments and store value at no cost, as reported by PYMNTS.
Also, CoinDesk reported earlier in the month that Haruhiko Kuroda, governor of the Bank of Japan (BOJ), has said that the country’s central bank must “prepare thoroughly” for the possible future need to issue a digital yen.
“From the viewpoint of ensuring the stability and efficiency of the overall payment and settlement systems, it’s important to prepare thoroughly to respond to changes in circumstances in an appropriate manner,” he said during a seminar, as CoinDesk reported.
It might be the case, we note, that Facebook’s currency efforts are (again) providing tailwind for CBDCs. As reported by Decrypt, Dr. Stefan Berger, a European People’s Party Member of the European Parliament (MEP), told the site in an email that “we must not let [Mark] Zuckerberg become a Central Bank.” Against that backdrop, proposals introduced late last year (contained in the European Commission’s Markets in Crypto-assets) have been calling for widespread and uniform regulation of crypto and digital currency issuance at a EU wide level.
“Facebook has more than 2 billion users,” said Berger, according to Decrypt. “By introducing their own currency, it could gain the power of a Central Bank overnight. Currencies, however, do not belong in the hands of a private company. At the end of the day, we must not let Zuckerberg become a Central Bank.”
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