When discussions turn to central bank digital currency (‘CBDC’) it won’t take long before someone mentions that apparently it was necessary for western central banks to be nudged into taking the subject matter seriously (‘… finally!’).
It is true that Facebook’s surprise Libra/Diem project was a wake up call. However, the discussion of whether central banks should introduce a new form of money that combines a different range of advantages as compared to cash, cards and bank accounts, was by no means new: the Swedish Rijksbank started working on its e-Krona project back in 2017, and the Peoples Bank of China rolled out a limited version of the e-CNY last year.
Since, the question of whether and how to introduce CBDC has gained significant traction and major central banks are edging closer to actually doing it. This seminar will update participants on the 6 most relevant questions pertaining to the introduction of CBDC.
1) Electronic money vs digital currency
The currently existing electronic forms of money work very well. Why is there a need for a new form of digital money, the CBDC?
2) Will the winner take it all?
If central banks introduce a convenient, cheap and safe way to store value and make payments, why should anyone still use the services of banks or other service providers? Should, against this background, the market be left do develop its own solutions?
3) Stablecoins vs CBDC
If there is market need for reliable digital money, why can’t its creation be left to private actors, who have shown, with the introduction of so-called stablecoins, that they can satisfy that need?
4) How to mitigate CBDC impact on monetary policy
The existing monetary policy tools of central banks would lose part of their effectiveness upon a full-scale introduction of CBDC. How can central banks steer clear of this problem?
5) Blockchain is not really the issue
How would the practical roll-our of a CDBC likely be organised in a highly developed financial market? And, would that be different in an emerging market? What could the technical set up look like?
6) Are central banks co-operating?
Sovereignty is a significant factor for the introduction of CBDC. However, the current regulatory and policy landscape owes many of its inefficiencies to the traditional territorial approach of organising financial markets. Given that, with CBDC, the world is starting from a clean sheet of paper, would it not be an opportunity to bake the market’s internationality from the outset into the CBDC policy and regulatory framework?
Philipp Paech is the founder of navigatingfintech.com and a passionate educator, consultant and policy-maker specialising in regulation of financial services for more than 20 years. He is the main author of the 30 Recommendations on Innovation, Regulation and Finance instituted by the EU Commission in 2018, which became one of the base documents of the EU’s current Digital Finance Strategy. He is a leading member of the Unidroit global digital asset expert group. Philipp researches and teaches at London School of Economics and the European University Institute in Florence.
Jannah Patchay is an independent consultant specialising in market structure, regulatory strategy and financial markets innovation. She is also an Originating Member and Policy Lead for the Digital Pound Foundation, a not-for-profit established in 2021 to advocate for the introduction of a well-designed digital Pound, and an effective and diverse ecosystem for new forms of digital money in the UK.
Alexandra Rădulescu is a legal consultant in a boutique law firm servicing the booming financial and regulatory tech sector in London. Shortly after graduating from LSE with a ‘Banking Law and Financial Regulation’ specialism, she was awarded the ‘highly commended’ prize for paralegal of the year at the Modern Law Awards 2022.
If you have any questions in relation to this event, please contact us.
Global CBDC adoption: the 6 core questions
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