If you snooze, do you lose in the race to develop a CBDC?
Speculation about the future mainstreaming of digital currencies was a big topic of conversation at two symposiums this past week: the 2020 DC FinTech Conference and a panel discussion hosted by the International Monetary Fund, which were both held virtually. The key takeaway from both events: the competition is heating up in the race to develop the first Central Bank Digital Currency (CBDC).
The DC FinTech hosted a discussion titled Central Banks, CBDCs and Cryptoeconomics. Impressive, isn’t it, to think that Satoshi Nakomoto’s white paper could, in 12 short years, potentially upend the world’s financial systems.
But here they were, some of the world’s highly recognized financial experts and industry insiders, discussing the continued movement toward CBDCs.
Like many other technological advances that are being pushed into the main stream by the pandemic (think telehealth), the move toward cashless payments is being more widely accepted as a way to conduct transactions versus using “dirty paper money.”
"Physical cash is no longer convenient," said Bank of England deputy governor Jon Cunliffe, according to Cointelegraph. "It's becoming increasingly inconvenient for people to use in their everyday lives, and the COIVD crisis has accelerated that.”
And while panel members acknowledged the need for CBDCs, they cautioned that the actual execution of this cashless option needs to be ironed out. After all, when it comes to financial transactions, the devil is in the details, isn’t it?
“We need to go slow, because we are in a hurry,” said Agustín Carstens of the Bank of International Settlements. “With payments, there’s no room for mistakes.”
But going slow brings another set of consequences, as former U.S. CFTC chairman J. Christopher Giancarlo pointed out, as he acknowledged that there is quite a bit of competition in the traditional financial markets to be the first to develop a CBDC. With China already traveling down that track and testing a digital yuan, the race to develop the CBDC often feels like the race to put the first man on the moon.
"If there's a winner, I don't think the winner is necessarily who's first and the loser is necessarily who's last," Giancarlo said. "What matters is, which central bank successfully incorporates its societal values in a successful development of CBDC." But, he cautioned, " one can't be too late to the game here.”
Giancarlo was following the lead of U.S. Federal Reserve Chair Jerome Powell who delivered a similar message in a panel discussion hosted earlier in the week by the IMF. “We do think it’s more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully,” Reuters reported.
At the IMF conference, European Central Bank president Christine Lagarde met the issue head on, saying, "The ECB is very seriously looking at a digital Europe."
So it was a good week for digital currencies, as the discussion of its benefits and future were once again visible on the international stage. Will all this talk lead to action any time soon? That’s up to debate. But one thing’s for sure, the pressure continues to rise on traditional financial institutions to develop CBDCs. Going slow to get it right seems to be the approach. Once the race is won and the first CBDC is issued, will the world feel the weight of its impact.
Or will it just be another, well, form of currency issued by traditional financial institutions?
“CBDCs will not usher in an age of prosperity or solve a raft of societal issues - this is beyond the scope of any currency,” Benoît Cœuré, a panelist at the DC event and head of Bank of International Settlements Innovation Hub, wrote in an opinion-editorial for CoinDesk. “They are not a revolution or an end in themselves. Yet, they might be a way of achieving a more inclusive, accessible, safe and convenient form of money. They might support a more diverse payment ecosystem, nationally and internationally and, if developed astutely, provide a new form of global public good.”
Joyce Pavia Hanson