According to a recent report from Juniper Research, The global value of CBDCs is expected to grow from $100 million today to $213 billion by 2030. Additionally, with fierce competition to introduce cross-border payment systems, the report predicts that by 2030, 92 % of transactions via CBDCs would be made in each country.
Digital currencies backed by traditional fiat currencies, such as the US dollar and British pound, can improve financial inclusion. Indeed, customers can use encrypted “digital wallets” in the cloud, desktops, laptops and even USB drives without having to own a bank account. For example, the CBDC cross-border payment system allows immigrants to send money to their home country without paying high transfer fees. It will also allow businesses to pay for goods and services cross-border with much cheaper and faster payments.
Ruth Steinberg, former CTO and managing partner of cybersecurity research firm CTM Insights, says CBDCs reduce the cost of printing and replacing banknotes, improve fraud detection, and make it easier to track and recover money. money paid to scammers.
“It can simplify and speed up cross-border payments and reduce the cost and complexity of processing checks and wire transfers,” he said. This supported CBDC will provide assurance that the value of the currency is carefully managed. They can adjust everything from the money supply to interest rates, much like governments do to manage and maintain the value of fiat currencies.
Additionally, digital currencies eliminate the anonymity of consumer cash transactions. In countries where consumer activity is closely monitored (e.g. China), this can reveal which movie tickets an individual has purchased or how much money they have spent at a bar. Difficult to track in cash.
“The United States is lagging behind in the development of CBDCs”
The United States has been slow to develop CBDCs compared to other countries (such as the Chinese digital yuan). Australia, China, Thailand, Brazil, India, South Korea and Russia are already running pilot programs or will start test programs this year. For example, the Bank of England and the UK Treasury plan to launch a digital pound or “Britcoin” CBDC by 2030.
According to Steinberg, it is important to know which country the digital currency is “widely adopted” first. This is because this government can set the global rules for most other countries. “The country that first establishes a large-scale international payment system will actually care about the standard, and the laggards will have to follow,” he said. “As the United States continues to work on the digital dollar, other countries are making progress. An international payment system based on digital dollars that is nearly equivalent to the next-generation SWIFT network should be established as a priority,” a- he pointed out.
These currencies or digital standards could also be used to spy on countries. “Cuba, for example, uses two types of currency,” Steinberg said. One of them is for foreigners only, so you can see which of your own citizens is making money against foreigners. For the dollar to maintain its role as a “key currency”, cross-border network standards must be established. Arriving late to the game means you have to play by other people’s rules.”
According to the Atlantic Council, an American think tank, 114 countries representing 95% of the world’s GDP are planning to issue a CBDC. Of these, 10% have launched regular CBDC networks. 16% of the projects are in the pilot phase, 30% are in development and 27% are still in the research phase. “America is behind it,” Steinberg said. The good news is that America is starting to realize this.
For example, in March 2022, US President Joe Biden issued an executive order urging the development of digital currency through the Federal Reserve Bank (hereafter Yeonjun). The executive order highlighted the need for increased regulatory oversight of cryptocurrencies used for malicious purposes (e.g. money laundering). Additionally, the Fed has been considering issuing a CBCD for several years. US lawmakers have also introduced legislation allowing the US Treasury to issue a digital dollar. Electronic dollars allow people to pay with tokens via mobile phones or cards instead of cash.
In November, the Federal Reserve Bank of New York began developing a CDBC prototype for cross-border wholesale payments. Cedar ProjectThis CBDC program, called , has built a blockchain-based framework that should be used on a pilot basis in a multinational payment or settlement system. The project, now in its second phase, is examining interoperability issues of distributed tokens in a joint experiment with the Monetary Authority of Singapore.
“CBDC platform, to succeed…”
Since the CBDC is issued by the central bank, domestic payments will initially be the main focus, and when the system is established and the CBDCs used in each country are connected, cross-border payments should become possible. But most important to the success of a CBDC is that sellers must embrace it.
According to the Atlantic Council, CBDCs require a complex regulatory framework, including privacy, consumer protection and anti-money laundering standards, and require stricter regulation before the technology can be adopted. In addition, the new payment system could jeopardize the security strategy of the countries that use it. “For example, it can track cross-border flows and limit US pressure to impose sanctions. In the long term, the lack of leadership and standards could have geopolitical consequences, especially if China and other countries maintain a first-mover advantage in developing CBDCs.
Steinberg agrees that fully decentralized systems are risky, stating, “Digital wallets can be electronically stolen and the validity (consensus) of transactions can be impersonated. Of course, a well-designed system can be secure now and in the future. However, a poorly designed system can lead to widespread theft and fraud.
According to a report by Juniper Research, the lack of commercial products related to CBDCs to date and the lack of well-defined platforms that central banks can use are currently a major constraint in the market. “Currently, cross-border payments are expensive and slow,” said Nick Maynard, director of research at Juniper. However, this is not the goal of developing CBDCs. “Since the adoption of CBDC will be very different in different countries, it is important to interconnect cross-border payment networks so that more payment industries can benefit from CBDC.”
Juniper further noted that any CBDC platform needs a comprehensive end-to-end financial network, including wholesale functionality, digital wallets, and merchant acceptance, to be successful.
According to Gartner research, one of the challenges facing central banks is finding ways to enable CBDCs to add value to existing payment systems. Gartner said in a January report that the success of a CBDC depends on the “programmability” implemented by smart contracts. “To justify CBDC investments, developers are integrating programmability into CBDC-based payments value chains. Bank CIOs need to prepare for this change,” he added.
Chinese bank Chengdu, for example, is using smart contracts to manage deposits for extracurricular activities as part of an ongoing digital yuan (e-CNY) pilot project. Gartner explained that using an e-CNY CBDC can reduce reliance on third parties when classes are canceled or students don’t show up and require refunds.
Steinberg pointed out that Russia and China, etc. were developing alternatives, recognizing that they were bound to be affected by (US) sanctions due to US infrastructure and currency-dependent payment methods. Following mBridge projectReferring to, “The country that needs the most attention is China. At the national level, there is a need to prevent all electronic payments from being transferred to technology companies. The strengthening of consumer surveillance presents clear benefits. Overseas, he’s piloted cross-border payments with central banks in Thailand and the UAE. That’s a concern right now,” he said.
editor@itworld.co.kr
