The next webinar in “The Fintech Times Presents” series revolved around digital currencies, more specifically CBDCs – what they are and what their future holds in an ever-growing digital world.
This November, The Fintech Times is looking to broaden the understanding of digital currencies, ranging from blockchain’s use outside of crypto to CBDCs, in an attempt to replace the notion that digital currencies are a synonym for crypto.
In today’s webinar, host Mark Walker, The Fintech Times’ Editorial Director, was joined by David Messenger, CEO of LianLian Global, Anthony Oduu, co-founder of Verto, Willy Lim, Global Advisory and Solutions Lead — Digital Currencies, Payments, and Capital Markets at R3; and Peter Woeste Christensen, Director at Frankfurt-based tech and consultancy firm LPA.
To watch the webinar in full, click here.
By its name, a central bank digital currency (CBDC) is the virtual format of a fiat currency for a particular nation or region. But why is it such a popular term right now? With pilots going well in China and encouraging words from the Treasury in the UK, CBDCs are moving forward at a spectacular pace. This webinar seeked to examine the reasons behind such a demand, and ask what technology and regulatory factors need to be in place to support an efficient roll out.
The webinar kicked off by discussing the difference between a cryptocurrency and a CBDC. David Messenger began by saying, “There are three classes here. There are the true cryptos, the Bitcoins of the world, which I classify as a new technology plus ideology in terms of focus on annonoymity outside of regulatory control. Then there are CBDCs are at the other end of the spectrum, using the same technology but with the added issues that central banks care about in terms of financial stability, and the soverignty of their money, their currency. Then in the middle there are stable coins, which are within the regulatory framework, and they look to work within the central bank and regulatory frameworks around the world, but they are using the new technology through a private company basis rather than the central bank.”
The benefits for underbanked countries was then debated, with Singapore used as a case study. Having introduced a multicurrency CBDC, Anthony Oduu noted, “This makes it possible for your merchants to trade cross border, and for me, that is extremely important. Having a digital currency to replace a fiat one is not doing anything. It’s just one to one mapping, whereas if you can allow people to easily transact with neighbouring countries, where there might be liquidity in the currency accessibility, you almost automatically reduce the troubles of settlement delays.”
The adoption of CBDCs are not going to happen overnight the panel agreed. There must be incentive from big corporations, like McDonalds, to publically state they are accepting the currency, to increase user uptake.
Despite the benefits, there are some big risks with CBDCs, as the panel discussed whitewashing, digitisation for the sake of it, and if CBDCs are just a way of governments getting information on how companies are spending their money. The idea of a digital dollar as a reserve currency was then brought forward, as the panel looked to explain the risks associated with a foreign country’s CBDC being used and if this would give the government insights to another country’s economy.
Peter Woeste explained a bigger, more immediate risk of CBDCs is that they can replace government funding and allow them to mint money whenever. David Messenger added to this point by raising the issue of: how responsible is the government as a steward of its own currency? If people more confident in a foreign government’s currency than their own then a CBDC is destined to fail.
The panel concluded with everyone giving their views for the future. Whilst the overarching agreement was that it will take between five to 10 years for significant change to be seen in CBDCs as they need time to be uptaken, Willy Lim looked to the near future, pointing out that there are already countries following China’s approach. “I believe there will be a lot of cross border initiatives. In fact, I’m hardly predicting this – it’s already happening. You can see from Hong Kong and Singapore, they’re developing cross border enablement, and the central banks are already participating in these projects.”