CBDC is coming, and fast
Just last month, China’s central bank, the People’s Bank of China (PBoC), announced that its new digital currency “can now be said to be ready.” The PBoC used language that was intentionally vague, with no release date announced. However, it’s clear that China, which is the world leader in mobile payments, is looking to solidify its position in the digital cash space. Last month, as part of nanopay’s Culture of Payments series, we released an article on the future of money, examining Sweden’s strong appetite to go cashless. While Sweden’s payment culture may be unlike any other, many countries’ central banks are now exploring the possibility of a Central Bank Digital Currency (CBDC).
According to the Bank of International Settlements (BIS), 70% of central banks surveyed are researching the issuance of CBDC, with a few central banks already committed to developing some form of CBDC. In fact:
- Cambodia announced its target to test a blockchain based CBDC for use by commercial banks, as early as the end of 2019.
- The Bahamas announced their goal to release a CBDC available to the public. The Deputy Prime Minister believes a CBDC would help fight corruption and be a huge benefit to those citizens living on islands that lack the infrastructure needed to provide a strong, physical bank presence.
- Saudi Arabia and the United Arab Emirates announced a joint digital currency to aid in settling trade between the two countries.
- The Eastern Caribbean Central Bank announced their intention to launch the world’s first CBDC pilot program, expected in 2020.
- The Bank of Thailand has also recently announced that their test CBDC prototype, to be used by commercial banks, is currently being finalized.
In addition to the above developing countries, who see a more immediate need for CBDC, there are central banks from many developed countries currently researching the implications of a digital currency, including the Bank of England, Bank of Canada, and the Bank of Russia. In the developing world, CBDC can revolutionize access to banking services for those citizens who are currently underserved, or unserved altogether. Unfortunately, there are still an estimated 1.7 billion people around the world who do not have access to basic banking services. But in the developed world, where access to banking services is less of a concern (despite millions who need improved access), CBDC can improve security, reduce fraud, increase seigniorage, and be used as a complement to cash.
Central banks are not the only organizations looking to implement a radical change to the global financial system. Technology giants, including Facebook, recently announced their intention to create and implement their own, native cryptocurrency. While this may help legitimize other competitors in the market, it may do something many, including Facebook, did not expect. The threat of Facebook, which is the world’s most powerful social influence and most criticized collector of data, may spur action from the world’s central banks, which are typically slow and measured in their adoption of new technologies. Issuing a digital currency is a significant decision, so it will take quite some time for us to see how central banks respond, not only to Facebook, but also to the changing habits of those who live within their borders. But regardless of the technology used, it is clear that many around the world are ready for new digital alternatives. It is possible that multiple alternatives to cash can co-exist, but one thing is clear, the central banks are not going to forfeit their position as the central authority to a publicly traded company.
Nobody knows what the future may hold, but in our current state, central banks are vital to the health and regulation of national economies, a neutral position of power that likely should not be relinquished to a corporation. Digital currency is coming, and the ‘why’ is clear, but the ‘who, what, when, where and how’ could take many forms. nanopay believes that technology providers should not compete against, but rather, partner with governments and central banks, to both better understand their needs, and better respond to changing behaviours. In this proposed partnership, both parties can levy their strengths to provide the public with a product that works safely and efficiently, and most importantly, benefits all participants.