Tuesday , January 25, 2022

CBDCs Inch Closer to Wider Acceptance as the Global Card Networks Build Alliances

It was probably only a matter of time before the two global card networks, which have already made overtures to blockchain technology, began venturing into support for central bank digital currencies. News of the latest development emerged very early Thursday with an announcement from Visa Inc. and blockchain software developer ConsenSys Inc. that the two companies plan to introduce a pilot platform for CBDCs this spring. Switzerland-based ConsenSys specializes in processing for Ethereum.

The news follows an announcement in December that ConsenSys is working with Mastercard Inc. to develop software to support a variety of blockchain-based applications, including CBDCs . 

Digital tokens representing national currencies have stirred interest in recent years as a number of countries have looked into introducing the technology to bring down transaction costs and further the cause of financial inclusion. China is said to be very close to introducing a digital yean, for example, and the Bahamas made a splash recently with the launch of its digital Sand Dollar. Altogether, some 90 nations have at least considered launching a CBDC, according to data from the Atlantic Council, a think tank that tracks the technology. 

While a CBDC can emerge from blockchain applications, not all such ventures have depended on the distributed-ledger technology. The launch of a CBDC can confer a range of advantages but the idea has stirred concern in some countries, including the United States, that such tokens could lead to vulnerabilities such as exposure of sensitive transaction data and disruption of the central bank’s ability to manage money supply.

Visa said Wednesday it has been working with ConsenSys to confer with central banks in various parts of the world to build a platform that supports cards or wallets that could be linked to CBDCs.

Analysts who follow CBDC developments say that while the technology can confer advantages not available with coins and paper currency, its usefulness could be limited to certain applications. For example, Talie Baker, a strategic advisor at Boston-based consultancy Aite-Novarica Group, says a CBDC makes the most sense in cross-border transactions. “That’s where [it] can come in and really revolutionize payments. It could reduce costs, and real time is huge,” she says.

Others see value in the idea of a stablecoin—a digital currency whose value is tied to that of a national currency—being issued by the national government. “Here’s a currency everyone can use that’s cheaper [than paper currency]. I’m an advocate of stablecoins in general and CBDCs in particular,” says Aaron McPherson, a payments expert and principle at Aaron McPherson Consulting. Baker and McPherson both spoke to Digital Transactions in connection with a story on CBDCs that will appear in the upcoming February issue.

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