Innovate Finance’s Global Summit took place last week in London and central bank digital currencies were at the heart of the dialogue. Government ministers, central bankers, and commercial bank representatives all agreed: it’s now a question of how – not whether – to implement CBDCs.
In his keynote address at Innovate Finance Global Summit 2023, Sir Jon Cunliffe, Deputy Governor of the Bank of England for Financial Stability, left the audience no room for doubt: “radical change is on the horizon” for payments.
The drivers include the decline of cash, the digitisation of everyday life and ongoing developments within existing payment systems, infrastructure and regulatory frameworks, said Cunliffe.
While he didn’t go into detail on retail CBDCs (the BIS Innovation Hub has another CBDC initiative, Project Rosalind, that’s testing CBDC access for payment providers using an API and the Bank of England launched a consultation on a retail digital pound back in February), Cunliffe made it clear that the Bank believes tokenisation will be widely adopted. “The question is not whether but how we should develop the machinery for tokenised transactions to settle in central bank money,” he said.
This vision from the UK’s central bank set the scene for a panel session that delved deeper into the topic. For ‘Love Actuary: Are CBDCs a risk or an opportunity for capital markets?’, moderator Ruth Wandhofer was joined by Marion Labourne, a macro strategist at Deutsche Bank; Josh Lipsky, a senior director at Atlantic Council; and our own founder and CEO Gilbert Verdian.
Labourne made her position clear early on. “When it comes to retail CBDCs, the question is not whether it will happen but when,” she said.
Gilbert went on to explain why there is so much interest in CBDCs – both from central banks and their commercial counterparts. “Central banks are realising that, by using blockchain and smart contracts, they are able to create a new form of money with logic built-in,” he said. “Central banks don’t want to impose uses for their currency but rather provide an infrastructure that allows commercial entities to differentiate themselves with innovative features like multi-party escrows, conditional payments or rapid dispersion of funds”.
Lipsky agreed and wanted to specifically dispel a couple of negative myths about CBDCs. “They won’t disintermediate the commercial banking system and they will not cause a bank run,” he said.
When asked about privacy concerns over CBDCs, Labourne was quick to add some perspective. “People will tell you that privacy is high on their agenda in a survey,” she said. “But convenience is ultimately what dictates their behaviour.”
For capital markets, the CBDC prize is near instant settlement, something that the panelists all believe will happen when tokenised money is used to transact tokenised assets.
The only question that remains then is a technical one: does it require distributed ledger technology? Gilbert’s answer is unequivocal: absolutely. Because DLT addresses all of the issues the panel mentioned. Smart contracts give users control, blockchain provides security and privacy, and interoperability – like that offered by Overledger – ensures seamless interconnectivity between the various networks and counterparties involved.”