Share this @internewscast.com
The process of introducing a central bank digital currency (CBDC) is fraught with unknowns, some of which were elucidated in a panel of experts gathered Monday at the World Economic Forum in Davos, Switzerland. The panel concluded that good design is key to a successful CBDC, and there are fewer challenges for wholesale CBDC introduction.
Bank of Thailand governor Sethaput Suthiwartnarueput said that although many central banks are considering a CBDC, there is little practical experience with them. The Thai National Bank began proof-of-concept programs in 2018. Its mBridge project began as an experiment in establishing a cross-border wholesale payment corridor with the Hong Kong Monetary Authority and has grown to include the Bank of China, the United Arab Emirates and the Bank for International Settlements. Cross-border transactions using traditional banking technology can take days to complete, while CBDC transactions are much faster.
Suthiwartnarueput said the use of blockchain technology can have unintended consequences. It is good for transparency, he said, but anonymity affects scalability. There is risk in a CBDC’s design because smart contracts require that the handling of every situation be specified ahead of time. He cited the current sanctions on Russia as an example of a potential challenge to CBDC design. The Thai central bank is looking at a “limited pilot” for a retail CBDC in the fourth quarter of this year.
International transactions between persons, especially remittances from workers located in other countries, which make up a market of $48 billion per year, are one of the most pressing use cases for CBDCs. Suthiwartnarueput said CBDCs can carry out such transactions at 50% less expensive and 68% faster than current money transfer technology. Currently, the average fee for a transfer of this type is 6.3% of the transaction sum.
Related: WEF 2022: Crypto remittances must have allure of cash without regulatory constraints — Jeremy Allaire
Credit Suisse chairman Axel Lehmann pointed out the rapid progress being made by non-blockchain fast payment technologies and raised questions for domestic retail CBDCs, such as whether accounts with central banks would pay interest. Privacy and intermediation are other thorny issues for retail CBDCs. International Monetary Fund managing director Kristalina Georgieva said, “We feel a little behind the curve” in the creation of retail CBDCs, and Bank of France governor François Villeroy de Galhau agreed, saying a “CBDC is not the monopoly on progress,” and central banks should not waste time in introducing it.
Suthiwartnarueput and the French central banker agreed that cross-border wholesale CBDC settlements may become a reality within five years.