Central bank digital currencies (CBDCs) have emerged at the forefront of financial innovation with striking and transformative momentum in recent years, having the potential to transform our perception of and interaction with money. For many of the world’s central banks, discussion around CBDCs has shifted from “if” they will be developed to “when” they will be introduced and widely used.
James Wallis is Ripple’s Vice President of central bank engagements and central bank digital currencies (CBDCs).
Developing a CBDC is a complex undertaking, given the interdependencies between policy and technology, as well as potential market impacts. If designed prudently, CBDCs can offer more resilience, enhanced security, increased access and lower costs compared to traditional forms of money.
Towards this end, the success of a CBDC is anchored by three core pillars of design: technology, policy and usability, with user privacy as an underlying consideration for each.
The first is technology. For CBDCs to move from experimentation to real-world implementation, they must have a resilient, secure technical infrastructure with the ability to onboard, authenticate and support users on a massive scale. It must offer boundless horizontal scalability capabilities to cope with an ever-increasing throughput of transactions.
Moreover, since it is unlikely that different countries will decide on the same infrastructure, a CBDC should be capable of interoperating across different technical infrastructures in order to reap the benefits of frictionless cross-border transactions.
The second pillar is policy, or the rules and guardrails established by the central bank and governments that underpin the entire ecosystem. This is, perhaps, the most time-consuming area for consideration, given the specific priorities and regulatory frameworks of each country and its central bank.
While enthusiasm from users and financial institutions is a significant factor for successful adoption, there are situations where CBDCs might still be introduced despite initial skepticism. Political motivations and policy objectives can play a crucial role in justifying the implementation of CBDCs.
The payments industry will need to adapt to the changing landscape such as adjusting operations and infrastructure to accommodate CBDCs….
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