Central Banks’ Interest In Central Bank Digital Currencies Are Growing – Report

Blockchain, News | October 25, 2018 By:

Central banks are embracing the concept of central bank digital currencies (CBDC), according to a new survey conducted by the Official Monetary and Financial Institutions Forum (OMFIF) and IBM.

The survey of 21 central banks, which ran from July to September, revealed that most respondents believe a wholesale CBDC should be issued by the central bank to remove liquidity risk. They also believe that a wholesale CBDC will remove credit risk and will ensure stability of the token’s value. 50% of respondents said that a wholesale CBDC should be designed in partnership with the private sector, arguing that it is necessary to engage stakeholders from the start, rather than impose new technology on participants. 8% of respondents explicitly stressed that a wholesale CBDC would have an impact on monetary policy.

Around 69% of respondents said that system resiliency has become an increasing priority for central banks. The report said that independently validating multiple-node consensus mechanisms, which are a feature of decentralizzed interbank payment systems, will prevent contagion spreading from a hack of a single central point.

All respondents showed enthusiasm for smart contracts. They believe the technology would grant central banks flexibility in determining variables in their payment and settlement, including what form the token would take and what it would be backed by.

The respondents came from institutions that are researching and trialling wholesale CBDCs (38%), as well as those who are not currently active in this field (62%). The Banco Central do Brasil, South African Reserve Bank, Norges Bank, Deutsche Bundesbank, European Central Bank and the Bank of Finland were among the institutions that participated in the survey.

Jesse Lund, global vice-president of IBM Blockchain, said that today, central banks play an essential role in managing monetary policy, and they will continue to do so as the foundation of stable economies worldwide.

“As we continue to see the advancement of blockchain and how it is applied in various instances across a number of industries, these new use cases indicate that central banks are now willing to explore blockchain,” said Lund. “This will help create added layers of trust and transparency, and quite possibly usher in a new banking era guided by the technology that brings profound new efficiencies to the banking infrastructure.”

Philip Middleton, deputy chairman of OMFIF’s advisory board, said that many central banks have devoted considerable effort to examining the viability of introducing digital fiat currency as a complement to physical cash.

“In the wholesale domain, the prospects for digital payment or electronic token exchange appear capable of delivering benefits while avoiding some of the difficulties inherent in retail CBDCs,” Middleton said.