Despite volatility in the cryptocurrency space, interest in blockchain technology and the belief that CBDCs will be the cornerstone of the future global monetary system are at peak levels.
Governments around the world, from China to the European Union (EU), are increasing their investments in launching their own CBDCs. Leading financial institutions also agree that CBDCs will transform the concept of money.
The future of the global economy
More than 90 per cent of central banks are exploring ways to integrate CBDCs into their monetary systems. A recent report by the Bank for International Settlements (BIS) highlighted the flaws in cryptocurrencies that make CBDCs a more ideal and feasible option.
The BIS states that CBDCs can “combine new technological capabilities”, removing the risks associated with unregulated intermediaries in cryptocurrencies. CBDCs can maintain the features of cryptocurrencies such as programmability and tokenization.
In addition to secure, fast, and cost-effective payments, CBDCs can introduce innovative solutions and drive transformative change across industries, benefiting both institutions and individual consumers.
As stated in a joint report by BIS, IMF, and World Bank for the upcoming G20, CBDCs signify a significant shift in global cross-border payments, enabling instant settlements across different time zones and promoting payment diversity. This will enhance the efficiency, resilience, and vibrancy of the payment ecosystem, disrupting the dominance of current incumbents.
Global organizations like BIS, IMF, and World Bank are not the only ones researching and experimenting with CBDCs. The competition for CBDCs is intensifying at regional and national levels as central banks launch their own initiatives.
Also Read: Could China’s CBDC threaten decentralised cryptocurrencies?
In Asia, Singapore is taking the lead in the region as the Monetary Authority of Singapore (MAS) collaborates on significant projects like Project Ubin and Project Dunbar, exploring multi-CBDCs in global cross-border payments with BIS, Bank Negara Malaysia (BNM), Responsible Business Alliance (RBA), and South African Reserve Bank (SARB).
CBDCs and their myriad advantages
CBDCs offer benefits beyond cross-border payments. Domestic wholesale payments can benefit from CBDCs through the implementation of Delivery vs Payment (DvP) and atomic settlements of digital assets.
Globally, securities settlement processes have evolved at different speeds, leading to market inefficiencies. The move towards shorter post-trade settlements is underway to achieve T+1 settlements from the current T+2 delay.
R3, a leader in finance and technology, is actively involved in projects like Project Ion with the Depository Trust & Clearing Corporation (DTCC) to enable T+0 settlement cycles and instant finality in securities settlement using Corda, their flagship DLT product.
CBDCs play a crucial role in accelerating this shift by providing financial institutions with enhanced efficiency for cross-border payments, 24/7 access to payment systems, and reduced settlement and counterparty risks.
Apart from securities settlements, CBDCs can have a social impact by promoting financial and digital inclusion through a universal interoperable legal tender payment instrument. Innovations like offline CBDCs can revolutionize the concept of money for retail users, similar to debit and credit cards.
One potential feature of CBDCs under exploration is their programmability for retail use, allowing for specific designs and functionalities that differentiate them from traditional fiat or commercial money.
Also Read: How Web3 will revolutionise borderless banking in Southeast Asia
The potential for financial services innovation for retail users with CBDCs is vast. IMF Managing Director Kristialina Georgieva has stated that “the history of money is entering a new chapter”.
Leading nations at the forefront of CBDC introduction
Many Asian countries are actively researching, experimenting, and implementing CBDCs to enhance their payment systems. Initiatives like the Asian Development Bank’s (ADB) two-phased project and collaborations on projects like Project Dunbar and Project Inthanon-LionRock are key examples of regional efforts to explore multi-CBDCs for cross-border payments and securities clearing and settlements.
Central banks worldwide are increasingly recognizing the potential of CBDCs in the payment ecosystem and are committed to making CBDCs the future of money.
Several emerging economies are already making strides in launching their own CBDCs. For instance, Cambodia introduced Project Bakong in collaboration with a Japanese fintech firm in 2020. Nigeria’s eNaira, issued by the Central Bank of Nigeria (CBN), faces challenges due to low demand from users and lack of awareness among merchants.
As countries like China launch e-CNY and markets like Thailand and Hong Kong intensify their research in digital currencies, the focus shifts to not just who will implement CBDCs first at a national level, but who will do it right?
Governments and central banks worldwide are collaborating on projects and working groups to identify best practices and ensure a smooth and sustainable path towards CBDC implementation. Industry expertise is vital to ensure successful implementation and advance CBDCs in the region.
Industry experts like R3 are actively engaged in providing advisory services to central banks in APAC to advance CBDC development and adoption, leveraging tools like the Digital Currency Accelerator powered by Corda and a digital currencies hub to stay updated on the latest industry trends.
Final thoughts
The global CBDC race is in its early stages, with many countries already launching their CBDCs. Collaboration between private and public entities is crucial to shape the future of money and the global economy.
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This article was first September 5, 2022
The post Who is leading the global CBDC race? appeared first on e27.