Davos 2023: CBDCs Are the Future of Central Bank Money but They Are Still Not Ready
A World Economic Forum (WEF) panel comprised of central bankers and global tech providers has profiled central bank digital currencies (CBDCs) as the future of central bank money, presenting them as one of the solutions for limitations in the payments sector today. However, they have also stated these present several limitations still to be addressed.
WEF Panel Explains Advantages of CBDCs
A central bank digital currency panel, part of the World Economic Forum (WEF) Davos meetings, stressed it has high expectations for central bank digital currencies (CBDCs) as part of the future of central bank money.
The panel, consisting of central bankers like Julio Velarde, governor of the Central Bank of Peru, Lesetja Kganyago, governor of the South African Reserve Bank, and Amir Yaron,
governor of the Central Bank of Israel, noted several supposed advantages these new financial tools might present, but also highlighted the difficulties in implementing them efficiently.
Governor Velarde explained that, in his opinion, CBDCs are rising as a solution for payments and credit that goes beyond banking integration. To him, the implication of central banks in building these tools has to do with establishing standards and also integrating private banks into the loop, while providing financial inclusion to people still out of the traditional banking system. About this, he stated:
We have learned the hard way that revolution has to come from the central banks. We don’t know the way in which CBDCs will be implemented… but we are looking closely at what will happen around the world.
Governor Amir Yaron explained that payments are now part of the forefront of the financial markets, and that is why central banks are currently interested in this. To Yaron, CBDCs could have a transitional function between the digital world and private bank institutions. He stated:
We are seeing faster payments, smart contracts, e-money, crypto assets, and stablecoins, and CBDC is a public good that can be complementary but can also crowd out some of these things. CBDC could be the bridge between the new digital economy and the standard economy.
Israel has been experimenting with CBDCs. Their central bank is part of Project Icebreaker, which involves cross-border CBDC-based payment between Israel, Norway, and Sweden with the collaboration of the Bank of International Settlements (BIS).
A Smarter Solution, With Caveats
For governor Kganyago, one of the main issues for more than 100 banks at worldwide levels to be studying CBDCs, is to breach the digital gap involving new kinds of money, like cryptocurrency, that is currently rising as an alternative to central bank-issued money, and modernizing payments systems.
In this sense, he believes that the environment is changing and some central banks consider they need to change with it, and offer these digital alternatives. For Kganyago, ultimately, there needs to be a national discussion on the demand side, where the big issues have to do with public choice on the usage of CBDC.
He concluded by explaining that the problems of the implementation of CBDCs for national and cross-border payments will lie more on the regulatory side than on the technological side, as these will need to comply with the regulations of several jurisdictions from all over the world.
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