A panel of experts from the World Economic Forum (WEF), global technology providers and central bankers have described central bank digital currency (CBDCs) as the future of central bank money and proposed them as one of the solutions for the existing issues in the payments industry. Nevertheless, they noted that it could have several restrictions.
WEF Panel Discusses Pros and Cons of CBDCs
The World Economic Forum held in Davos saw a panel of central bankers, including 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, discussing the potential of CBDCs as the future of central bank money.
Velarde explained that CBDCs can be employed as a credit and payment solution that goes beyond the integration of banks. According to him, central banks’ participation in the development and implementation of these tools is necessary to create standards and include private banks, while guaranteeing financial inclusion for those outside the banking system. He said:
We have learned the hard way that the revolution has to come from the central banks. We don’t know yet how CBDCs will be implemented, but we are closely monitoring what is happening around the world.
Yaron pointed out that payments are a big part of the financial market, which is why central banks are interested in them. He believes that CBDCs could serve as a bridge between the digital world of private banks and the digital world of CBDCs. He added:
CBDC could lead to faster payments and smart contracts. It can also be used to facilitate e-money and crypto assets. CBDC could be the link between the digital economy and the traditional economy.
Israel is already experimenting with CBDCs. The country’s central bank is part of the Project Icebreaker, which includes CBDC-based cross-border payments between Israel, Norway, and Sweden in collaboration with the Bank for International Settlements (BIS).
Innovative Solutions with Limitations
Kganyago noted that more than 100 banks are currently examining CBDCs. One of the challenges is bridging the digital divide. Cryptocurrency is currently being used as an alternative to money issued by central banks. He said that the environment is changing and some central banks believe they need to change with it and offer digital options.
Moreover, he argued that a national discussion is needed to determine the public’s preference for CBDC use. He concluded that the challenges for implementing CBDCs for cross-border and domestic payments will come from regulatory compliance with different jurisdictions, rather than technical issues.
What do you think CBDCs could mean for the future of central bank money? Share your thoughts in the comments below.
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