The process of introducing a central bank digital currency (CBDC) is fraught with unknowns, some of which were described at a panel of experts gathered at the World Economic Forum in Davos, Switzerland on Monday. The panel concluded that good design is the key to a successful CBDC and that there are fewer problems with wholesale CBDC adoption.
Bank of Thailand governor Sethaput Suthiwartnarueput said many central banks are considering CBDCs, but little practical experience. Thai National Bank launched a proof-of-concept program in 2018. The mBridge project started as an experiment to establish a cross-border wholesale payment channel with the Monetary Authority of Hong Kong and has grown to include the Bank of China and the United Arab Emirates. International Settlement Bank. Cross-border transactions using traditional banking technology can take days to complete, but CBDC transactions are much faster.
Suthiwartnarueput said that the use of blockchain technology can have unintended consequences. He said transparency is good, but anonymity affects scalability. There are risks in the design of CBDCs because smart contracts require all situations to be specified in advance. He cited current sanctions on Russia as an example of a potential challenge to CBDC design. The Central Bank of Thailand is considering a “limited pilot” for retail CBDCs in the fourth quarter of this year.
International transactions between people, particularly remittances from workers residing in other countries, which constitute a market worth $48 billion per year, are one of the most pressing use cases for CBDCs. Suthiwartnarueput said CBDCs are 50% cheaper than current remittance technology and can perform these transactions 68% faster. Currently, the average fee for this type of transfer is 6.3% of the transaction amount.
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Axel Lehmann, chairman of Credit Suisse, pointed to the rapid development of non-blockchain simple payment technology and raised questions about whether domestic retail CBDCs would charge interest on central bank accounts. Privacy and brokerage are other tricky issues for retail CBDCs. Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said in the process of creating a retail CBDC, “we feel we are a little behind”, while French Bank Governor François Villeroy de Galhau agrees that “the CBDC is not a monopoly on what is going on”. I did. Banks should not waste time adopting this.
Suthiwartnarueput and France’s central banker have agreed that wholesale CBDC payments across borders could become a reality within five years.