Jim Ford, payments consultant at Digital Pound Foundation, reveals what needs to happen for CBDCs to become part of mainstream finance and the CBDC projects to look out for in 2022, ahead of joining a panel at this year’s Open Banking Expo Central Bank Digital Currencies Confex on 10 March.
1. What are your expectations for CBDC in 2022?
Projects across the world will continue. China may well launch its CBDC later in the year. A report from the Bank of England and HM Treasury on next steps for a UK CBDC will come out this year.
Further exploration around wholesale and retail use cases will take place across the globe.
2. Who is setting the pace in CBDCs? Are there clear front runners?
China, Bahamas, Nigeria, Singapore, Hong Kong, Thailand are the front runners.
Europe, the UK and US have catching up to do.
3. Will CBDCs change the balance of power when it comes to global reserve currencies?
There is a possibility of this happening. China may see a CBDC as a valuable tool in its ‘Belt and Road’ initiatives, especially in areas like Africa where it is a strong investor. Many of these countries could see the digital yuan as a second currency.
However, global reserve status depends on more than just economic power, there are also issues such as political stability, rule of law and depth of regulation. Both the US and Europe are strong in these areas – it depends on how fast they move.
4. What needs to happen for CBDCs to become part of mainstream finance?
There needs to be a clear business case. All areas of society need to be educated on its benefits. There has to be a clear legal foundation.
The concern around commercial bank vulnerability in times of stress needs to be resolved. The type of infrastructure to be used needs to be determined – eg. central or distributed technology. Privacy, resiliency and liquidity issues need to be resolved as well.
5. What is the one thing people should take away from this event?
I think the fact that CBDCs are coming is the key message and, indeed, have arrived. Therefore banks and other FS providers – especially payments providers – need to think about how they plan for this.
Digital Pound Foundation’s Jim Ford is joining a panel on ‘Leveraging CBDC for better cross border payments’ at the virtual Confex on 10 March, speaking alongside Deutsche Bank’s Manuel Klein, Anne-Catherine Bohnert, deputy head of the digital currency and innovation service at Banque de France and Payments Solved founder Nilixa Devlukia. View the full agenda here.
To register for the Confex, click here.