Latest news about Bitcoin and all cryptocurrencies. Your daily crypto news habit.
Watch the full session from Ripple Swell Global 2020 today.
With China set to launch the worldâs first Central Bank Digital Currency (CBDC) by the end of the year, pressure is mounting on the worldâs other major central banks to join the digital revolution.
When discussing the topic at Swell 2020, both David Mills from the Federal Reserve Board (FRB) and the European Central Bankâs (ECB) Ulrich Bindsell admitted that their organizations were lagging behind the central banks of China, Sweden and the Bahamas in pioneering progress towards CBDCs.
The annual Ripple Swell Global conference brings together the worldâs trusted leaders in financial services and blockchain technology, though in a virtual setting this year. Speaking from Frankfurt, Ulrich suggested that the ECBâs measured stance on CBDCs was partly based on the conservative approach to adopting new payment technologies shown by many Europeans.
Like much of the world, the US and Europe has seen a trend towards fewer cash transactions, especially since the pandemic. However, this decline is generally slower than in the rest of the world where mobile payments have thrived in places where people have little or no access to traditional banking services. David noted how some of the CBDC innovators are motivated by existing friction in their current financial infrastructure.
âTheyâre trying to leapfrog certain types of technologies to modernize their broader payments and financial ecosystem,â he said. â[The US already has] a pretty robust electronic payments ecosystem. For more developed economiesâŠthereâs a lot of interest and focus on this technology as a new innovation on top of existing modernization efforts.â
The lack of traction so far in Europe means that many of the continentâs leading electronic payments services are non-European businesses. Much of the ECBâs current interest in CBDCs is driven by worries around loss of monetary sovereignty if it does not offer a digital alternative to cash.
âThe situation where central bank money would no longer be usable for citizens is the main scenario we have in mind,â explained Ulrich. âElectronic payments have been so convenient that itâs a matter of evolution for central banking to offer central bank money to everyone in the modern formâŠit would be more of a revolution to not do so.â
Both David and Ulrich agreed that the ECB and FRB have a responsibility to balance the desire for innovation with the need to maintain existing infrastructure. The FRB is especially interested in how a CBDC could run on existing rails and transfer across multiple platforms efficiently.
This issue of interoperability will be key to the success of any CBDC. With each central bank pursuing a digital currency that meets its own specific needs, the resulting solutions and technologies are likely to vary. But to thrive in a global economy, each initiative will also need to be built using shared open protocols and standards that will enable interconnections with traditional financial systems and other CBDCs.
Open and effective partnerships between central banks and the blockchain industry is critical, not least because of the power of the ECB and FRB. Ulrich noted the potential of an ECB-issued digital currency to crowd out other initiatives and called for industry-wide collaboration.
âThatâs the first important message to the industry,â he said, âthat they should be part of the solution.â
This may also require a realignment of expectations. While itâs common for fintech innovators to tout the revolutionary potential of their services, David expects the near future of CBDCs to be about incremental enhancements to the existing system.
âEarly CBDCs will ultimately look closer to eMoney or prepaid cards,â he predicted. âTechnology is great in that it expands whatâs feasible to all of us. But we still have to apply constraints where we meet two objectives that compete with one another. Those mature conversations around CBDCs are what I expect to see more of in the next few years.â
If youâre a bank or financial institution interested in learning more about CBDCs, contact us or watch the full session today.
The post How the U.S. and EU Central Banks View the Future of CBDCs appeared first on Ripple.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.