CBDCs at Blockchain

Emily chaired a panel on CBDCs at Blockchain week in London sponsored by Fintech Worldwide.

4 key themes of this discussion: 1) Why are we talking about this 2) What is a definition of CBDC 3) Who are international regulators involved and what are Central Banks actually doing in this space and 4) what are the geopolitical implications.

Some points that I made during the panel discussion:

“A common critique of cryptocurrency in general, including stablecoins, is that governments are protective of their right to control the issuance of currency and supply of money.”  CBDC’s are a result of this view.

Listening to the Fed Chairman Jay Powell testify to Capitol Hill two weeks ago, he said:  “Libra lit a fire to our thinking.  It is ‘systemically important”, fully appreciate the need for a quick process to review issues including ‘cyber, privacy, operational’.  We have an ‘adequate visibility on China’s potential’ in this area.

So Libra lit a fire, but the work in this area has been going on in earnest prior to Libra.

Central banks are considering CBDC for two main reasons: Declining use of cash in advanced economies and financial inclusion in emerging market and developing economies

One of the major problems in blockchain/crypto space is a common taxonomy.  Words are used commonly, but definitions are not commonly held.  This is particularly true in the area of CBDC.  The lexicon is muddled at best between economists, Central Banks, and laymen (aka us).

A number of Central Banks are researching this topic, some have instituted a CBDC, and others are in pilot stages.

In addition, international bodies are involved.

• There is some coordination going on at the BIS level having announced the formation of  a working group in January.  “The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements (BIS), have created a group to share experiences as they assess the potential cases for central bank digital currency (CBDC) in their home jurisdictions.

The group will assess CBDC use cases; economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies. It will closely coordinate with the relevant institutions and forums – in particular, the Financial Stability Board and the Committee on Payments and Market Infrastructures (CPMI).

The group will be co-chaired by Benoît Cœuré, Head of the BIS Innovation Hub, and Jon Cunliffe, Deputy Governor of the Bank of England and Chair of the CPMI. It will include senior representatives of the participating institutions.”

• The World Economic Forum issued a “The World Economic Forum’s CBDC Policy‑Maker Toolkit seeks to address the need for a concise CBDC decision guide that provides comprehensive and risk‑aware information to policy‑makers. This document serves as a possible framework to ensure that any CBDC deployment fully considers the costs as well as the potential benefits”.
• The IMF has written a number of staff reports and blogs on the topic including and clearly will be at the center of the monitoring of Central Bank monetary policy as a result of potential implementation of CBDCs.

In addition, many Central Banks are experimenting.  Some are further along than others and there is a differentiation between Developed country Central Banks and those in the developing world where currency stability and payments system inadequacies are rampant.