How CBDCs Can Benefit From Banks’ Expertise

Public-private partnerships have yielded great things from railroads to universities, and now they stand to be a transformative force in the future of central bank digital currencies (CBDCs).

This is analyzed in the report “Why Public-Private Collaboration Is Key To Blockchain Adoption,” a PYMNTS and Algorand collaboration, which examines different CBCD projects now underway around the world and how private players in the blockchain space can add value.

“Commercial banks possess a wealth of knowledge and experience when it comes to customer onboarding, fraud detection, and data protection,” per the report. “This makes them good partners for central banks seeking to implement or pilot CBDCs, particularly at the retail level.”

Read the report: Why Public-Private Collaboration Is Key To Blockchain Adoption

Because the introduction of CBDCs is seen as disrupting traditional banking, the report noted that “to minimize the risk of bank disintermediation, central banks may work directly with the private sector to ensure that all relevant players can contribute to CBDC development.”

Looking at various ways public-private partnerships on CBDCs can benefit the entire ecosystem, the report added that financial institutions (FIs) “will act as facilitators enabling wholesale payments while also serving as intermediaries between central banks and consumers for retail transactions.”

That opens the door for FIs to experiment with CBDC-related products and services, bringing more innovation and competition to the space, which in turn is expected to yield new CBDC use cases as both tools and platforms “that private entities can leverage to improve existing business models and create new ones.”

Among the most promising futures for blockchain technology and CBDCs is payments.

“Payment acceptance and access to cryptocurrency are at the top of use cases” that banks and FinTechs see governments and corporations needing, the report said. “At the same time, trade finance, employer services, and treasury services are not far behind, as almost 75% of FIs look to offer commercial blockchain solutions.”

The study quoted Algorand founder Silvio Micali as saying: “The global blockchain technology market, including both public and private segments, has experienced wild growth since the onset of the pandemic, and that is only expected to continue. Valued at an estimated $2.5 billion in 2020, the global market is projected to grow to $30.7 billion by 2027, marking a compound annual growth rate (CAGR) of 43%. The public segment alone is expected to be valued at $21.5 billion by 2027 for a CAGR of almost 45%.”

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