A recent survey of central banks revealed that 86% are actively doing research into central bank digital currencies (CBDCs), 60% are already in the experimenting phase, and almost 15% are doing pilot testing.
The idea of CBDCs has been circling around for a few years now, however, with the growing attention toward cryptocurrencies and money digitalization in general, banks are now focusing on how to put the idea into practice. For instance, the Bank of England, together with HM Treasury, created a dedicated task force to explore potential use cases of CBDCs in the UK market and monitor international developments regarding the topic. Norway is pushing ahead, too, while China is already in the process of testing digital Yuan out in the real world.
“CBDCs could be a game-changer for the payments industry,” said Marius Galdikas, CEO of ConnectPay. “Aside from the clear benefits, for instance, low-cost cross-border payments or boosting financial inclusivity, it could also enhance domestic payments system resilience, slightly shifting dependence from the international payment processing networks.”
According to Galdikas, CBDCs could be a major catalyst for the payments market, as government-issued digital currencies would be as easily accessible as current e-money payment methods, yet, in some respects, it could surpass what current market players have to offer.
“Although it has immense potential, the idea still has a long way to go,” Galdikas said. “Essential decisions need to be made concerning how state-backed currencies could inherit the properties of cash, for instance, working offline or addressing the double-spending problem. Also, it’s highly likely that the central banks will not take on the responsibility to develop and implement the technology themselves, yet will want to retain the control of the currency itself. There is no best way to address these types of questions, and that's why specialized teams and task forces are being assembled — to come up with an approach that would combine different tools into a single solution.
“Therefore, payment service providers will have to step up their game to match the benefits CBDCs would bring to the table, which means moving up into a higher gear when it comes to innovation and delivering unique market solutions,” he continued. “They’ll have to be more strategic in communicating their strengths and value proposition to their target audience, too.”
While outlining the benefits, Galdikas also noted how this would impact market newcomers.
“CBDCs would definitely set an even higher standard for greater technological competence, which means setting up shop for new businesses is going to need a lot more investment from the get-go. That said, I believe that some of the barriers would drop, for example, the requirement that only credit institutions have access to payment systems, such as SEPA. All in all, the CBDC, with inherent properties of cash, would allow for a wide variety of innovative financial solutions.”
This could be a pivoting moment in the industry, which would greatly contribute to building a more financially inclusive society. However, a lot of questions must be addressed before then, with the main ones being technological implementation, as well as privacy concerns, which might arise due to CBDCs being state-backed