The Domain of Central Bank Digital Currencies is Drawing NearDecember 8, 2018
Ever since 2014, the discussion in the public domain about the digital payment options that are issued by national central banks kept going. Less than a decade ago, the same would be an almost unthinkable idea that would have found little traction in the IT domain and almost no traction in the financial circles. Now, however, the discussion has matured significantly and many see it as the precursor of the appearance of the so-called CBDCs.
The acronym stands for Central bank digital currencies that have been the front and center of most such discussions. BIS or the Bank of International Settlements and the IMF (International Monetary Fund) have been at the forefront of the same discussion.
Now, a range of reports coming from many official banking sources points towards a deep and clear understanding of blockchain technology and its potential use inside of the traditional banking systems on the national level. The result is that the possibility of banks employing blockchain for the purpose of creating their own digital currency is, according to many analysts, is basically around the corner.
Innovating Retail Payments Options
There might be plenty of goodwill needed for the development of the bank-based cryptocurrencies but there is also the fact that the history of the novel payment solution was always developed with a lot of difficulties. This was clearly shown in the last 30 years of internet users, but also well before the age of esports and mobile devices. Creating and implementing any new means of payment never went through easily and there are many reasons why this is good.
Petro, for example, is a form of innovative currency that has arguably created a world of confusion and mistrust, so any bank would be wise to be careful about its introduction. At the same time, even unified forms of payment options, like cash, credit cars or cell phone recharge differ from one country to the next according to a range of factors. These include the level of KYC (Know-Your-Customer) requirements, transaction fees, and interest payments.
The same difference would not disappear with the introduction of a digital version of the currency. This is also the key objection that many of the opponents of digital currencies inside of the central bank systems provide. Aside from the smaller upkeep costs, what are they actually providing for their users that ask for their introduction into a system that is already more than big?
Simply, the introduction of new tech often sounds cool and exciting, but the historical examples show it to be a horribly treacherous terrain that houses the graves of many failed attempts. All of them, digital and traditional have one thing in common – they provided the consumers something that they did not want or did not find worthwhile enough in that particular shape and form.
The Brazil CBDC Possibility
Any successful approach to the CBDC would ask for an architecture that considers, payment habits, demands of consumers, preferences in any particular region and some other factors as well. This could result in what can be only described as an idiosyncratic design. However, judging from the latest research papers into the same topic, Brazil looks like it could be close to developing its own CBDC.
The eighth largest economy in the world could be among the first to undertake such a venture and the reason for this is clear – in Brazil like in any other underdeveloped country, the access to and quality of financial services for many ordinary citizens are basic at its best.
This is true in particular for places that are distant or small, usually in rural or extremely poor parts of the country. Here, attaining anything like a regular EU banking account for ordinary citizens is a distant dream for practically all local Brazilians.
The Possible Forms for a CBDC
There are three main approaches to a possible CBDC. The first is called the bear or basic instrumental, where the currency works as a cash-like value which functions in much the same way. The more complex option is the possibility of having a CBDC as a digital bank account that would provide the users with a parallel to the traditional fiat bank account.
Finally, there is the hybrid option that combines some features of both of the previously mentioned versions. This is not a theoretical-only set of ideas. Many central banks, including those from the G8 economy, have already been working on active blockchain projects. These include the Bank of Canada, along with the Bank of England and the Monetary Authority of Singapore.
The list does not end with these ventures and there are many more who will follow in the coming months and years. This means that there is no longer the discussion if the blockchain is worth the effort and time of the central bank. Instead, the discussion shifted towards the actual way how the central bank-issued digital currency, which is only a matter of time, should be defined and presented to the consumers.
Bringing Digital Currency to the People
Physical cash is a persistent force in the modern world. In some places and regions, it is even more prevalent than it was before the world population shifts from the barter-based economy of the extremely poor to the cash-based alternative.
But, at the same time, the movement towards a transition to the digital payment principles are equally strong. In fact, bitcoin and many other digital currencies were created with the purpose of showing that digital transactions can take place away from the government’s online eyes. Now, some believe that the fringe movement of non-governmental cryptocurrency projects have gone as far as they can go and central banks must step in for the global change to takes place on any meaningful level.
Ideally, the crypto enthusiasts are hoping that the same process will eventually include the previously mentioned cryptocurrencies in their new digital systems. There is no way of knowing if this will happen, but there is a strong sense that the central banks are slowly but surely taking over the wheel of the blockchain digital development.