Miles Au Yeung, chief markets officer at eCurrency, reveals the six characteristics a CBDC should have if it is to be trusted by the public, and why Bank of Jamaica’s CBDC project is such a “valuable” case study, ahead of his participation in Open Banking Expo’s Central Bank Digital Currencies virtual Confex on 10 March.
1. What are your expectations for CBDC in 2022?
Additional general purpose CBDC experimentation and pilot projects will be launched in 2022. Scopes will include integration with existing financial infrastructure, e-money services and channels for converting between CBDC and other forms of money.
Interest in cross-border CBDC remains. A key element of the solution is an efficient foreign exchange rate discovery, funding and settlement mechanism.
2. Who is setting the pace in CBDCs? Are there clear front runners?
Central banks which leverage proven technologies designed for CBDC to extend the trust in cash to the digital economy and foster an innovative and resilient ecosystem will be the front runners.
Focusing on the economic, policy and operational design and implementation of CBDCs will be key.
3. Will CBDCs change the balance of power when it comes to global reserve currencies?
CBDCs, in the first instance, are primarily focused on bringing efficiency gains and greater inclusion in individual economies. Whether the advent of CBDCs changes the balance of power when it comes to global reserve currencies is a moot point. It depends on the economic importance of a country and the credibility of its institutions and policies.
Over time, for a systemically important country with sound institutions and economic policies, CBDCs could expand the international usage of its currency, to help it achieve reserve currency status.
4. What needs to happen for CBDCs to become part of mainstream finance?
CBDC is another form of cash issued by the central banks. It is part of the cash in circulation – it complements physical banknotes and coins. For a CBDC to become part of mainstream finance, it has to be highly trusted by and convenient to the general public.
They should have the following characteristics:
- Legal tender status and a direct claim on the central bank has to be absolutely clear, regardless of whether the CBDC exists as an account entry or a digital object in an online or offline environment;
- The supply management (minting, issuance, redemption and destruction) must be a well-defined process, compatible with existing currency management, legal and operational frameworks;
- CBDCs must be protected from counterfeiting, including attempts using quantum computing technologies;
- CBDCs should be distributed through existing financial intermediaries and infrastructure (e.g. physical locations, electronic channels, agent networks) and be always accessible;
- Private sector intermediaries need to be able to provide and innovate services built on CBDCs to reach all corners of the populations and satisfy different market demands to create value for their businesses and their customers;
- Broad and sustained public communications and incentives will be needed to encourage long-term user behavioural changes.
5. What is the one thing people should take away from this event?
The Bank of Jamaica CBDC project is a valuable case study. Bank of Jamaica minted and issued CBDCs five months after it selected the technology partner.
The CBDC bearer instrument encapsulates the same legal tender status and instant settlement finality of physical cash. It is, additionally, more secure and reliable than physical banknotes.
The open architecture allows the commercial banks, government entities, payment service providers and fintech companies to offer CBDC services using their choice of technologies, and to innovate and compete on their services and user experiences. It follows the existing KYC/AML compliance and mechanisms. It protects privacy while enabling supervision of CBDC circulation.
eCurrency’s Miles Au Yeung is taking part in the panel session ‘Use case: Bank of Jamaica and eCurrency Mint’, alongside Novelette Panton, division chief, financial markets infrastructure division at Bank of Jamaica, at the virtual Confex on 10 March. View the full agenda here.
Click here to register for the Confex.