“About 80–100 Central Banks around the world, including in G20 nations, are exploring central bank digital currencies (CBDC) and are in some sort of pilot or testing stages,” said Tobias Adrian, Financial Counsellor and Director – Monetary and Capital Markets Department, IMF at the Global FinTech Fest.
The three-day Fest, which concluded on September 30, was attended by over 26,000 delegates from 121 countries. Policymakers, technocrats, investors, founders, economists, bankers, participated in the Fest. The event was organised by National Payments Council of India (NPCI), Fintech Convergence Councill (FCC), and Payments Council of India (PCI) of Internet and Mobile Association of India (IAMAI).
Differ from bitcoin
“CBDCs are designed to be very stable, stable in value, with a low transaction cost and backed by the Central Bank for added consumer confidence, very different from bitcoins which fluctuate in value and are more like an investment asset,” Tobias Adrian said.
There could be a lot of innovations in Central Bank issued digital currencies, especially across payments and lending platforms.
“CBDCs could indeed be somewhat similar, not necessarily the same, to bitcoin assets, could be based on blockchain technology, could be available in wallets. It depends on whether the design is based on existing payment systems or using very powerful blockchain technologies,” he added.
Meanwhile, he warned that cybersecurity could be a major challenge for CBDCs. “You need to make sure that the system is resilient against cyberattacks.” It’s not the technology alone, but the intersection of technology and human.
Secondly, CBDCs might undermine existing banks so banks need to upgrade their technologies to compete.
Finally, the lack of universal cellphone access may limit CBDC penetration.
On expensive cross-border payments, Adrian envisioned that cross-border transfers would be a lot cheaper for a small amount of payments. There are some wallet exchanges available that allow one to convert US dollar into rupee stable coin, with an implicit fee that is cheaper. However, there are a lot of discussions going on between Central Banks of various countries to make cross-border payments cheaper.