Markets need to ‘act faster and fix faster’ for a global digital marketplace

Wholesale CBDC development will be process of evolution rather than revolution, OMFIF-Visa report finds

Research has been ramping up over the past couple of years into the capacity of digital currencies to strengthen payments systems and enhance the efficiency of wholesale settlements. Key players in this discussion are in agreement that there is too much at stake to rush the introduction of central bank digital currencies.

As a result, much is being done through a slew of projects and pilot schemes aimed at furthering central banks’ understanding of issues ranging from credit and settlement risk to scalability and interoperability. This is the subject of technical study and collaboration between central banks, some in co-operation with the Bank for International Settlements Innovation Hub, to understand and propose key considerations in CBDC implementation and adoption.

At OMFIF’s roundtable on ‘Enhancing domestic payments with wholesale CBDCs’, participants provided insights into the progress of these projects, which aim to spur on the evolution of an increasingly digital global financial marketplace. Key catalysts for CBDCs were discussed in the panel, as well as technological hurdles inherent in its use and development.

In a poll of audience members, half chose tokenisation of financial markets as the most important of these key catalysts, which was in line with the views expressed by the panel. This was followed by cross-border payments (42%). Only 8% named the introduction of systemic stablecoins as an important reason for developing a wCBDC.

According to panellists, however, scalability and resilience emerged as key themes. Philipp Müller, banking operations analyst at Swiss National Bank, underscored the importance of resilience, in particular. He used the practical example of the inconvenience caused to consumers on something as routine as a train ticket app malfunctioning for an hour or two. Scaling up to a national payments system would mean the consequences presented by a temporary closure would be far more serious. As a result, Basak Toprak, executive director and Europe, Middle East and Asia head of coin systems and global product owner of deposit tokens at Onyx by JP Morgan, added that the market will need to ‘act faster and fix faster’.

On the regulatory front, however, monetary authorities are warming up to the idea of CBDC. But as the concept, advantages and use cases come into focus, broader opinion on the desirability of CBDCs continues to be divided. Audience members at the roundtable queried risks from payment providers’ monopolies, reflecting concerns in the industry. But panellists agreed that the development of wCBDCs will be a process of evolution rather than revolution.

The conversation shed light on this further. Claudine Hurman, director of innovation and financial market infrastructures at Banque de France, added that she does not foresee a ‘Big Bang’ event for wCBDCs. Instant adoption of the technology may not be able to be accommodated for, as she cited that central banks’ principal mandate as guardians of financial stability suggests the process will be gradual and cautious.

Among resilience and scalability as one of several motifs touched upon throughout the panel discussion, the continuous search for enhanced interoperability was emphasised by Catherine Gu, global head of CBDC and protocol at Visa. She pointed to the universal payments channels initiative as an example of Visa’s efforts in establishing interconnecting networks and fostering interoperability.

Ensuring that regulators, central banks and governments are aligned on developing the efficiency of domestic payments, wholesale CBDC and digitalisation of finance on the whole, is a key consideration to keep in mind in the near future. Progress is coming into sharper focus, with thanks to these conversations.

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