The recent 2023 London Blockchain Conference featured a discussion on Central Bank Digital Currency (CBDC), with participants discussing their understanding, attitude and implementations of the concept. The discussion was moderated by Jon Southurst (Associate Editor – Asia Pacific for CoinGeek) and included:
- Kumaraguru Ramanujam (Founder and CEO of Intrasettle);
- Chris Ostrowski (Founder and CEO of Sovereign Official Digital Association);
- James Belding (CEO of Tokenized).
The panel discusses core questions about CBDCs at an early stage of their development and demonstrated versions of CBDCs to explore their practicality.
Defining Central Bank Digital Currencies
In principle, the participants can agree on a common definition, but they emphasised different aspects in the discussion. Ramanujam, who began the panel, provided the basic definition and emphasised that CBDCs represent a novel form of money, where the liability is held by the central bank. They comprises various forms such as cash notes, bank deposits, and coins.
He adds that CBDC encompass both digital cash and tokenised cash, offering unique properties and opportunities. Ramanujam further noted that wholesale CBDCs are already in existence, facilitating interbank transactions using central bank money.
Both Chris Ostrowski and James Belding agreed with this definition, but Ostrowski added the insightful aspect that, while wholesale CBDCs already exist, retail CBDCs represent an entirely new category of money:
‘I would say it’s probably a third category of money in the retail space in people’s hands at the moment. You have commercial bank money and you have cash. This is a third form of public digital money, a third form of money called a CBDC, which exists in a new habitat. It exists in token form on permissioned or permissionless blockchains,’ he said.
Shaping the discourse on CBDCs
The discussion then turned to the conceptual nature and adoption of Central Bank Digital Currencies (CBDCs). Southurst questioned the push for CBDCs, exploring whether it’s primarily led by central banks, governments, credit card companies, or other entities.
Ramanujam emphasised that use cases vary across jurisdictions, citing examples like India’s need for secure cash due to counterfeiting issues. Ostrowski pointed to the pivotal moment when Facebook’s Libra (Diem) sparked central banks’ interest, leading to policy discussions touching on various issues like privacy and cybersecurity.
The participants agreed that CBDCs are a work in progress, with Ostrowski highlighting the slow-paced policy making environment due to the complexity of policy issues involved. The discussion touches on the demise of Libra/Diem, attributing its failure to central banks’ resistance and the fear of an existential crisis. Concerns about monetary sovereignty and the supply of cash drove central banks to explore CBDCs.
Implementing CBDCs
The discussion then turnedto the practical aspect of CBDCs with James Belding’s company Tokenized. Tokenized recently released a desktop application dashboard which lists CBDC as a payment option, which starts off the discussion of implementing CBDCs.
Belding described his company’s vision of a tokenised future, aiming for all financial instruments to be interoperable under the same standard. He explained that Tokenized wants to express its readiness for CBDC integration. He notes that they follow the ongoing discussions with central banks and that the release is intended to showcase capabilities and build trust for potential partnerships.
Chris Ostrowski highlighted a different aspect when it comes to implementing CBDCs. He pointed out that there is an urgency to create CBDCs. He talked of a need to get tokens into people’s hands, especially in regions with underbanked populations, presenting opportunities for financial inclusion. The discussion further highlights the benefits of CBDCs:
- Potential for micropayments;
- machine-to-machine transactions;
- improvements in global remittances.
While the overall discussion about CBDCs is positive, Ramanujam did raise concerns about privacy, accessibility, and financial inclusion, especially in the context of internet-based transactions. Highlighting the diverse use cases across jurisdictions, he questioned whether central banks should distribute CBDCs through commercial banks and delves into the complexities of direct issuance by central banks.
Addressing challenges and concerns
The challenges and complications previously mentioned by Ramanujam are addressed in more detail by Southurst. He turned the discussion to concerns and criticisms regarding CBDCs, particularly related to privacy and government control. The host acknowledged the fear that CBDCs could be perceived as a threat to privacy, giving governments more control over individuals’ spending and access to money, and also mentions that some US states, like Florida, have legislated against CBDCs.
James Belding emphasised the importance of blockchain in the next generation of financial infrastructure, highlighting trust and transparency as key components. He notes that privacy concerns are more related to policy decisions than technological aspects. The discussion touched on the need for responsible policies and government behaviour, with the suggestion that blockchain technology can enhance transparency and thus provide the very basis for trust that was previously lacking.
Ostrowski noted that the discussion around privacy and control has intensified with China’s launch of the digital yuan. He acknowledges that the current level of privacy and control is limited, citing examples of surveillance with non-illicit cash transactions. Ostrowski further emphasised the need for vigilance and democratic control over CBDCs, expressing discomfort with excessive oversight by big tech.
Kumaraguru Ramanujam highlighted a similar aspect and expresses support for public accountability when it comes to CBDCs. He mentions regulators demanding embedded supervision from fintech companies and advocates for technology, particularly public blockchains, to facilitate public accountability:
‘The regulators are demanding embedded supervision from fintechs like us, for them to have the data and analyse that. And as a public good, we should look for public accountability. And that’s why technology plays a role In terms of public blockchains. There should be an ability for us to know how much cash is being issued if it has been backed and if they are issuing more cash. I’m in favour of public accountability,’ he said.
