Economists, financial services and technology experts joined The Future of Finance on 18 May for a lively discussion on how central bank digital currencies are shaping our future.
Many legislators, such as the UK’s House of Lords, have expressed skepticism about this new form of money. Still, according to the Atlantic Council, some 91 countries are actively exploring digital currency as fiat. Economies, including China, Singapore, South Korea, Sweden, South Africa, and Saudi Arabia, are further along with advanced pilot programmes. Nations that fail to take CBDCs seriously risk being left behind as global monetary systems and technology evolve.
The discussion included: Gilbert Verdian, our Founder and CEO; Ricardo Correia, Head of Digital Currencies, R3; Jake Hartley, Business Development Director and CBDC SME; Fnality International; Vadim Sobolevski, Strategy and Development, FutureFlow; and John Whittaker, Economist at Lancaster University.
They debated the structure of CBDCs (wholesale vs retail models), regulation and policy and the potential impact on consumers. The panelists also discussed whether this new digital money will be a massive opportunity that redesigns the way money and data flow throughout economies or is a systemic threat to financial stability.
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Read our selected excerpts
Dominic Hobson: Gilbert, you have the experience working with governments. Is there a current loss of momentum with governments working to implement CBDCs, or have we moved to a more serious phase?
Gilbert Verdian: Payment systems are complex. They are critical national infrastructure, and non-CBDC payments and systems took a long time to get online. They then had to connect to member banks and issue the scheme rules, so they could all operate at the same level. Then, they pushed it out to the wider consumer base. These things take years. It’s not that easy to upgrade or install a new payment system.
We have similar issues with CBDCs, and governments are taking a serious approach. It’s not just theoretical experimentation. People are seeing it deployed in smaller jurisdictions. We are learning what the possibilities are and what it means to complement our existing payments infrastructure with the central bank digital currencies—and, what this means for the end-business, end-consumer and the scheme itself.
Dominic Hobson: Now, what is your view about the survivability of stablecoins as we look forward to a world in which CBDCs are issued in major economies?
Gilbert Verdian: I think that the events of the last week [the Terra/Luna crash] have proven the point that the whole financial system is foundationally built upon trust. If something goes wrong, you must have some protection mechanisms with your commercial banks, and ultimately with the central bank for consumers and businesses.
We don’t see the survivability of algorithmic or crypto stablecoins. We see a world of regulated and issued commercial stablecoins from eMoney licence holders and commercial banks. At the same time, we’ll have a network of networks of commercially-issued stablecoins that are interdependent and linked to wholesale CBDCs. These will be able to be redeemed, accepted, and settled across networks in a true cross-border fashion. And these will be all travel-trusted and backed by real money.
Audience question for Gilbert Verdian: Can a privately-issued collateral stablecoin, such as USDC, negate the need for a CBDC?
Gilbert Verdian: It’s not a wholesale versus retail binary debate. It’s how does it fit within the financial system debate. There could be jurisdictions where they don’t issue a wholesale CBDC, and the retail aspect is a commercial stablecoin issued by a regulated entity.
In jurisdictions with small populations, they may want to direct the end-to-end flow directly to the consumer wallet or the business. It really depends on the use case. It comes down to trusting and having regulated entities that can issue a new form of money that gives companies and people better benefits than today.
Audience question for Gilbert Verdian: Can CBDCs function on multiple blockchains simultaneously, for example, using Quant’s multi-ledger token technology?
Gilbert Verdian: Yes, domestic payment systems are set up to be accepted by competitors. In the UK, you have 18 banks competing with each other for your business. Yet, they play by the rules, working with each other to run the payments system.
I think doing this is very difficult at the beginning for any new type of payment system. The technology needs to be ubiquitous and seamless. Having scheme rules that are harmonised and accepted by all the participants is going to be even more important. Doing that domestically is one challenge; then doing that globally cross-border is another.
But our view is that money [CBDCs] should roam with you as your phone roams with you. As with your bank account, it should be global. You can spend it and have your money accepted anywhere in the world that has a banking connection on a domestic or cross-border system.
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