The process of introducing a central bank digital currency (CBDC) is fraught with unknowns, some of which were elucidated at a panel of experts meeting Monday at the World Economic Forum in Davos, Switzerland. The panel concluded that good design is key to the success of uba CBDCs, and that there are fewer challenges to introducing a wholesale CBDC.
The Governor of the Bank of Thailand, Sethaput Suthiwartnarueput, said, Although many central banks are considering introducing a CBDC, there is little practical experience with it. The Thai national bank started proof-of-concept programs in 2018. Its project mBridge It began as an experiment to establish a wholesale cross-border payment gateway with the Hong Kong Monetary Authority and has grown to include the Bank of China, the United Arab Emirates and the Bank for International Settlements. Cross-border transactions using traditional banking technology can take days to reflect, while CBDC transactions are much faster.
Suthiwartnarueput said that the use of Blockchain technology can have unforeseen consequences. It’s good for transparency, he said, but anonymity hurts scalability. There is a risk in the design of a CBDC because smart contracts require the handling of each situation to be specified in advance. He cited the current sanctions on Russia as an example of a potential challenge to CBDC design. The Thai central bank is looking into a “limited pilot” of retail CBDC in the fourth quarter of this year.
International transactions between people, especially remittances from workers located in other countries, which constitute a market of USD 48,000 million a year, are one of the most pressing use cases for CBDCs. Suthiwartnarueput said that CBDCs can perform these transactions 50% cheaper and 68% faster than current money transfer technology. Currently, the average commission for such a transfer is 6.3% of the transaction amount.
The president of Credit Suisse, Axel Lehman, noted the rapid progress of non-blockchain-based rapid payment technologies and raised questions for domestic retail CBDCs, such as whether accounts at central banks would pay interest. Privacy and brokerage are other thorny issues for retail CBDCs. Managing Director of the International Monetary Fund, Kristalina Georgiev, I affirm that “feels a bit behind schedule” in creating retail CBDCs, and the governor of the Bank of France, Francois Villeroy de Galhau agreed in stating that “CBDC is not the monopoly of progress” and that central banks should not waste time introducing it.
Suthiwartnarueput and the French central banker agreed that wholesale cross-border CBDC settlements could be a reality within five years.
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