What a Global Central Bank Digital Currency Network Might Do
What a Global Central Bank Digital Currency Network Might Do
(Bloomberg) -- A network among multiple central bank digital currencies could create efficiencies in the tens of billions of dollars and benefit all participants, according to a new report.
A full-scale mCBDC network that facilitates 24/7 real-time, cross-border payments and FX payment-versus-payment settlements could save global corporates nearly $100 billion annually, the report from consulting firm Oliver Wyman and JPMorgan Chase & Co. said, noting numerous pain points in current systems such as trapped liquidity and delayed settlements.
It added that while many private-sector entities and some central banks have tried to resolve some of these issues, as yet there’s no scalable and seamless solution that can work across countries, currencies, and payment systems.
Such a solution would trigger a rethink on how commercial banks and other foreign exchange providers may deliver their current offerings, and change processes for everything from market makers to technology providers, the report said. “However, we are encouraged by the potential for new business and operating models, which could yield long-term benefits for all participants,” it said.
The report did caution that the administrative, coordination, and policy difficulties associated with on-boarding of multiple central banks could prove to be a hindrance for initiating mCBDC networks at scale.
Central banks’ plans for digital currencies have been accelerating in recent years, with countries like the Bahamas and Cambodia getting into the act along with bigger nations like China. Even the U.S. dollar is getting into the act, though a bit more slowly than some.
While many see great promise in the developments, there is already concern about the impact on the financial sector: the Bank for International Settlements recently cautioned in a series of reports that CBDCs might become a preferred safe haven during a future financial crisis, potentially aggravating runs at commercial lenders. And in an August report, JPMorgan strategists led by Josh Younger said retail CBDCs need to be set up carefully to avoid cannibalizing a country’s financial sector.
©2021 Bloomberg L.P.