More than 90 countries are developing Central Bank Digital Currencies (CBDCs). However, practical use cases for this kind of currency should appear only three to five years from now, say experts congregated at the Febraban Tech conference.
Pismo was an exhibitor and sponsor at this banking technology conference, which gathered 25,000 people in São Paulo, Brazil. CBDCs were a hot topic discussed in several panels during the event.
Wholesale x retail
The Bahamas was one of the first countries to announce a CBDC, the digital stang. China is gradually deploying its digital yuan. And the US central bank, the Federal Reserve, is running trials to implement the digital dollar.
While other countries focus on wholesale CBDCs, used to settle interbank transfers, Brazil prioritises a retail CBDC for personal payments. The Brazilian Central Bank plans to start testing it in September.
Fábio Araújo, the coordinator of the Brazilian digital currency initiative, says that the country’s CBDC, called digital real, will reduce transaction costs and thus allow the development of new financial services. It will connect digital currencies to the traditional financial system, and it will drive the advance of the web3, the blockchain-based internet of finance.
Security is paramount
Even so, Driss Temsamani, Head of Digital at Citi, believes that it will take up to five years for us to see practical use cases. “This will only happen after the banking infrastructure adapts to the new reality of digital currencies,” he says.
Ron Raffensperger, CTO of Huawei’s Enterprise Division, says that one of the lessons of the digital yuan is the need for interoperability with other countries, which, in the Chinese case, are Singapore and Thailand. He also emphasises that security and privacy are essential to give consumers confidence in digital currency.
Johan Gerber, VP of Security and Innovation at Mastercard, agrees: “We have to start with trust at the foundation. If a consumer has a digital deposit and there is a cyber attack, this can undermine their trust in the currency. We need security and privacy by design.”
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Pismo has investigated what a CBDC-led future may look like. In our in-depth research, we analysed how retail and wholesale CBDCs could sit alongside the existing banking system.
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