A World Economic Forum (WEF) panel made up of central bankers and global technology providers has outlined central bank digital currencies (CBDCs) as the future of central bank money, presenting them as one of the solutions to constraints in the payments industry today. However, they have also stated that they have several limitations that still need to be addressed.
WEF panel explains the advantages of CBDCs
A central bank digital currency panel, part of the World Economic Forum (WEF) meetings in Davos, stressed that it has high expectations for central bank digital currencies (CBDCs) as part of the future of central bank money.
The panel, made up of central bankers such as Julio Velarde, Governor of the Central Bank of Peru, Lesetja Kganyago, Governor of the Reserve Bank of South Africa, and Amir Yaron,
Governor of the Central Bank of Israel, pointed out several supposed advantages that these new financial tools could present, but also highlighted the difficulties in implementing them efficiently.
Governor Velarde explained that, in his opinion, CBDCs stand out as a payment and credit solution that goes beyond bank integration. For him, the involvement of central banks in the construction of these tools has to do with setting standards and also with the integration of private banks into the circuit, while providing financial inclusion to people who are still outside. of the traditional banking system. On this, the fixed:
We have learned the hard way that the revolution has to come from central banks. We don’t know how CBDCs will be implemented… but we are closely watching what will happen around the world.
Governor Amir Yaron explained that payments are now part of the forefront of financial markets, and that is why central banks are currently interested in this. For Yaron, CBDCs could have a transition function between the digital world and private banking institutions. He stated:
We’re seeing faster payments, smart contracts, e-money, crypto assets, and stablecoins, and CBDC is a public good that can be complementary but can also displace some of these things. CBDC could be the bridge between the new digital economy and the standard economy.
Israel has been experimenting with CBDCs. Its central bank is part of the Icebreaker Project, which it implies CBDC-based cross-border payment between Israel, Norway and Sweden in collaboration with the Bank for International Settlements (BIS).
A smarter solution, with caveats
For Governor Kganyago, one of the main problems for more than 100 banks worldwide to study CBDCs is to break the digital divide that involves new types of money, such as cryptocurrency, which is currently emerging as an alternative to money issued by the central bank. and modernization of payment systems.
In this sense, he believes that the environment is changing and some central banks consider that they must change with it and offer these digital alternatives. Ultimately, for Kganyago, there needs to be a national discussion on the demand side, where the big issues have to do with public choice on the use of CBDCs.
He concluded by explaining that the problems of the implementation of CBDCs for national and cross-border payments will be more on the regulatory side than on the technological one, since these will have to comply with the regulations of various jurisdictions around the world.
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