The development of a central bank digital currency (CBDC) points directly to the inclusion of both the central bank in the national economy and the people it serves. Meanwhile, heTechnology for cross-border payments is mostly developed elsewhere, according to a new payment industry report.
The Digital Money Institute (DMI), which is part of the think tank of the Official Forum of Monetary and Financial Institutions, published its third annual report on the future of payments on December 8. The report was sponsored by several payment companies and cryptocurrency exchange Binance, with those companies writing sections that complemented the DMI findings.. It was the first time that a survey of central banks had been included.
DMI staff found in their survey that CBDC development was “gaining momentum”, with two-thirds of central banks expecting to have CBDCs within a decade.. Another 12% of central banks surveyed said they did not expect to issue a CBDC at all. When asked about their goals, more than a quarter of central banks mentioned preserving their role in money provision and more than 10% mentioned financial inclusion. “Other” was indicated more frequently.
None of the banks chose “assist cross-border payments” as one of their goals. Nevertheless, almost 35% of banks considered CBDC interconnection to be the most promising way to improve such payments. When asked about stablecoins, nearly 90% of banks identified them as “an opportunity to make cross-border payments more efficient.”
Fiat-based cross-border payment systems are developing rapidly. However, there are significant obstacles to achieving global reach, especially data sharing, as only about 70 countries have adopted the ISO20022 messaging standard.. The DMI report says that “regionally integrated payment networks offer an exciting prospect.” Still, 80% of African cross-border transactions are processed outside the continent. In general, it is “unlikely that payments will turn into a winner-take-all fight,” the report says. “The variety of payment systems will grow, creating competition and diversity in the market.”
#Live:Sonja Davidovic, @BIS_org: It’s really very difficult to determine what the impact of a #CBDC on #financial stability might be. It’s not an easy task to design these #technologies properly to avoid adverse impacts. https://t.co/V0bbfnZZ3a
— OMFIF (@OMFIF) December 8, 2022
#Live: Sonja Davidovic, @BIS_org: It really is very difficult to determine what the impact of a CBDC might be on financial stability. It is not an easy task to design these technologies properly to avoid adverse impacts.
Cryptocurrencies and stablecoins are making their biggest strides in emerging economies, as they offer the advantages of disintermediation (allowing faster settlement across time zones), cost savings, and accessibility, but have the potential drawbacks of volatility and unreliability. In the opinion of the authors:
“Vulnerable nations should invest to reduce the cost of remittances and expand access to financial services to reduce the exposure of vulnerable economic groups to volatile and insecure cryptocurrency products.”
Finally, the report looks at the metaverse from a payments perspective, calling it “first and foremost, a blueprint for a digital economy.” Here, interoperability between platforms is key and will likely require “major changes in business models”. Later:
“Developing the infrastructure to make metaverse payments stable, secure, interoperable, and free from financial crime will have a major impact on the broader payments landscape.”
The report cites a Citi estimate that the metaverse addressable market could reach $13 trillion.
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