In an op-ed for Global Risk Regulator, Quant’s Founder and CEO, Gilbert Verdian, explains how central bank digital currencies (CBDCs) could improve our global payments infrastructure, but need to be implemented appropriately.
With 19 of the G20 countries actively exploring CBDCs, this new form of money has massive potential to transform financial services and payments. It also could substantially improve the domestic and cross-border payments infrastructure, support financial inclusion and prevent fraud.
“CBDCs fundamentally change the nature of money taking it beyond a medium of economic exchange. With CBDCs and commercial stablecoins, currency can become programmable and automated to streamline payment workflows. Additionally, real-time digital money can provide central banks with an accurate view of monetary risks, enabling them to proactively adjust fiscal controls and help prevent financial crises like in 2007-2009.”
CBDC implementation and structure will be vital, he says:
“However, if CBDCs are to be adopted, they must be properly configured and implemented as critical national infrastructure, protected like existing payment systems and economies. The BoE concisely laid out core principles for its CBDC design — it needs to be resilient, inclusive, innovative and competitive. Critically, a digital pound must facilitate individual privacy protections.”
On the ability of CBDCs to prevent fraud, he explains:
“Fraud prevention is another key benefit. For example, in a government scheme to ease people’s energy costs, they [banks] could programme a CBDC as a benefit payment to be spent solely with energy suppliers. It would be impossible to use it for other purposes.”
CBDCs could be implemented in parallel with current monetary systems:
“At first, this proposed CBDC model could run alongside and augment our current monetary system. Adoption would, of course, depend on the CDBC being seen as a ‘force for good’ by consumers and businesses, and ensuring this digital currency is as frictionless and convenient as our current electronic payments system.”