There has been rapid progress on the CBDC end lately. China has reached the final phase and many other countries are walking the same path. The latest news is the central bank think tank OMFIF launching the Digital Monetary Institute, a forum to further the explorations around central bank digital currencies (CBDC).
Philip Middleton, Chairman of Digital Monetary Institute, in a recent podcast, explained the various events that led to the creation of CBDC, the digital fiat currency’s implications once introduced, and more. Commenting on the various external factors that propelled the creation of a CBDC, Middleton stated,
“Two big external events – One was the announcement last summer of Libra potentially launching. So a private sector currency launched by a major global technology posed a direct threat to central banks and financial stability. The second thing is COVID-19.”
For context, the Bank of England was one of the first organizations to initiate a global discussion on the prospects for the introduction of a CBDC and the bank has released various discussion papers to date exploring the uses of a CBDC. However, the question here is that central governments are not likely to find answers on their own, without the help of the private sector. Both entities will have to find a middle ground and find a way to work together. In response to this, Middleton stated,
“I anticipate many countries will experiment with the kind of system whereby the central bank provides that currency, but the private sanctity provides the means of delivery and indeed, private sector operators are also encouraged to operate, if you like, on the rails that are being provided.”
The point to note here is that even though the CBDC project ends up being a partnership between the government and a private entity, all the end calls will be taken by central banks and the private entity will not really have a say. So the question arises- ‘What is the use of a partnership then?’, ‘ Why would people want to circle back to the same old centralization, when there are decentralized currencies available?’. Additionally, with the entry of Facebook‘s Libra 2.0, with the backing from 75 leading tech companies, it is going to be a significant competitor to many central banks’ CBDC projects.