DailyPost 1829
CENTRAL BANK DIGITAL CURRENCIES, CBDCs
History has in its fold the story of the future or has the uncanny knack to bring it to where it all started. It has also startling similarities of different stages of economic development in different countries happening in different time periods. Saurabh Mukherjea sees business consolidation in India through this prism. The story of money today is also the same, the difference is that it would happen in lot many countries closely spaced, unlike the developments in earlier eras. Deputy Governor of Sweden’s central bank declared in May 2018 that ”if you extrapolate current trends, the last note will have been handed back to the Riksbank by 2030.” Sverige’s Riksbank was the world’s first central bank and amongst the first to issue currency banknotes. The wheel has taken a full circle, it might turn out to the first to do away with it.
Without getting into further details one can safely say that China was moving in this direction even before COVID-19 and in all likelihood would not be long behind in this race. Bitcoin and the backend blockchain technology with Fintech are redefining the financial world. These are preparing the ground for the next wave in the transformation of money. CBDCs would be the most transformational. What is CBDC? ”At the conceptual level, a CBDC is simply a fiat currency issued by a central bank in digital form as a complement to, or in place of, physical currency.” The understanding of the future usage foresees the impact with a range of implications. It can also be issued in multiple forms.
The forms are clearly put in two types at the basic level, two forms of Central Bank money; retail and wholesale.* The wholesale deals with bank reserves, interbank payment systems and the widely known real-time gross settlement system, RTGS etc. The interbank transactions are already digital. The tech improvement will help use this money more efficiently and cheaply. Singapore Central Bank is developing wholesale CBDC – ”digital tokens that are disseminated to banks and managed using DLT”* (distributed ledger technologies), the core of blockchain technology. Transactions become quicker and more secure. US is happy with strengthening it RTGS and not even considering DLTs. The leadership decides how much of technology the institutions can digest.
The world is resistance to technological change, if you have to initiate and make it happen. Swedish Riksbank has started with the research / experimentation with different forms of retail CBDC. The first e-money. This is the simple version of electronic currency in which the central bank manages the centralized payment system. The payments are made using central bank money. The second is account based CBDC; the individuals and businesses have access to central bank accounts. Central bank thus becomes the manager of a sophisticated payment system, which might also help to implement policies more easily. The core of the system is a centralized verification mechanism. CBDC managed by blockchain or any form of DLT ”would still be permissioned blockchain in contrast to the decentralized permissionless one of the sort used by Bitcoin.”
A PERMISSIONLESS SYSTEM AS VISUALISED BY BLOCKCHAIN INVENTOR IS STILL, NOT IN THE RECKONING.
Sanjay Sahay