IBM and the independent think tank Official Monetary Financial Institutions Forum (OMFIF) have released a 40-page report revealing that most central banks around the world agree cryptocurrencies bring benefits.
However, the majority of officials at central banks have “concluded that, although such an introduction (of cryptocurrencies) could deliver benefits in both payments system efficiency and the exercise of monetary policy, now is not the time, for a variety of practical and policy reasons, to proceed with a retail central bank digital currency (CBCD)”, writes Philip Middleton, Deputy Chairman of OMFIF.
He adds that even though some cryptocurrencies “may have enduring value as investment assets”… “it appears, for now, highly improbable that any privately-created electronic currency will displace fiat money as a widespread means of payment and exchange”.
Central banks do see benefits in a wholesale CBDC, which is exclusively for interbank settlements, as well as for settlements between central banks. Many major central banks are already experimenting and trialling wholesale CBDCs, which they believe will speed up and optimise the settlements mentioned above.
Despite slamming “the social movement behind Bitcoin” for perpetuating “a mistaken idea that banks are no longer necessary actors for secure global money transfer”, IBM Blockchain Vice-President Jesse Lund assures “cryptocurrencies are here to stay”.
“Building on the foundation laid by Bitcoin, IBM believes central bank digital currencies will offer new efficiencies and inspiration for future payment innovations,” Lund states.
According to IBM and OMFIF, “Bitcoin is not a universally accepted means of payment, and so remains unqualified as a medium of exchange. The usability of a cryptocurrency diminishes as it becomes a speculative vehicle with volatile purchasing power.”
CBDCs resolve issues cryptos can’t
The report says that although CBDCs denominated in an established currency could resolve the issues cryptocurrencies have failed to do so, “it is not necessary for central banks to rush to issue digital currencies to compete with cryptocurrencies”.
And in fact, “no major central bank intends to implement a retail CBDC (a publicly distributed cryptocurrency) in the near term”.
Central banks could potentially launch a cryptocurrency at a very low cost to them and that they would not require blockchain, because “as ledger keepers, they are considered sufficiently trustworthy already”, a claim with which many cryptocurrency advocates would deeply dissent.
However, what central banks are mulling is the introduction of wholesale blockchain-powered CBCDs that would eventually replace their existing interbank settlements system, which, the report says, is nearly obsolete.
“Trials of wholesale CBDC systems illustrate how variations of distributed ledger technologies have the capacity to meet and, in some cases, exceed the performance of existing interbank systems,” the report reads. “However, there is still a long way to go before the technology is mature enough to meet central banks’ expectations for the next generation of real-time gross settlement systems.”
The study states that “costs of exploration are high, and success is not guaranteed”. So, smaller central banks have adopted a wait-and-see approach, while larger banks take the lead.
The experimentation and development phase is a long and very complex process. IBM is working with several institutions on “new, secure and very efficient systems”.
The success of IBM’s project relies on the collaboration of central banks, financial institutions and the private sector, the report states. And also “on the goodwill from financial institutions – they must give up the chance of gaining a competitive edge for a collective ‘greater good’ in payment systems. Whether they are willing to do so remains to be seen”, it concludes.