Some Central Bankers Signal Support for Private Sector Digital Currencies Over CBDCs

Conventional wisdom holds that, as digital currencies continue to evolve and as bitcoin and its brethren joust with the traditional banking system, central banks would embrace central bank digital currencies (CBDCs) whole-heartedly.

But that would just be the conventional wisdom, and the reality is a bit more nuanced.

As reported by Reuters earlier in the month, at least some central bankers from the G20 — the intergovernmental forum comprising 19 countries and the European Union — have signaled that digital currencies issued by the private sector may have more utility than those issued by central banks.

By way of example, Australia’s central bank governor and head of the Hong Kong Monetary Authority said at a panel discussion in Indonesia that these privately-issued tokens would prove more useful than the CBDCs.

Private Solutions Better?

Of course, Philip Lowe, the Australian central bank governor and HKMA CEO Eddie Yue said that regulation would help determine just how well those digital offerings benefit consumers.

“I tend to think that the private solution is going to be better — if we can get the regulatory arrangements right — because the private sector is better than the central bank at innovating and designing features for these tokens,” Lowe commented at the panel discussion. Other comments made during the discussion pointed to the costs involved in designing and deploying CBDCs.

And here lies what might be the eternal debate within banking, and as centralized finance jousts with decentralized finance. Central banks have a vested interest in keeping their dominance intact.

And in July, the Bank for International Settlements (BIS) wrote to the G20 in its July report, “Options for access to and interoperability of CBDCs for cross-border payments,” that “well-calibrated access to CBDCs by foreign PSPS (payment service providers) and non-residents may facilitate cross-border payments, though it is not a silver bullet. A complementary approach is ensuring interoperability between CBDC systems … Each of the CBDC access and interoperability models has different implications in terms of macro-financial risks, efficiency, resilience, coexistence and interoperability with non-CBDC systems, and financial inclusion.”

Not the easiest of tasks — a technical and logistical heavy lift that can take months of collaboration and discussion.

And as has been spotlighted in this space, there’s a real need for cross-border efficiencies. Sending cryptocurrencies like bitcoin or stablecoins like USD Coin or Tether’s USDT from one wallet to another is anywhere from quick to instant. The development of stablecoins has been largely the purview of private sector enterprises, and in the meantime, a number of regulatory frameworks have been taking shape. SWIFT has been getting into the act too, having joined The Clearing House and EBA Clearing in launching a pilot program for real-time, cross-border payments.

Read Also: The Token Economy: The Promise of Faster, Cheaper Cross-Border Payments

The BIS and the International Organization of Securities Commissions in the last few weeks have offered guidance on the application of financial market infrastructure rules to stablecoins, including the entities that provide stablecoins.

In the meantime, the greenfield opportunity is there for the private issuers. As PYMNTS research has found,  in collaboration with Circle, 250 multinational businesses and 250 financial institutions (FIs) said that they are six times more likely to use cryptos to conduct transactions than they are to hold onto the digital offerings, on their respective balance sheets, as investments. About 58 percent of multinational firms use at least one crypto and as many as a third of firms use three to five stablecoins.

The door may be opening wider, then, for the private sector to take a more visible stake in the emerging digital currency markets.

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