In a recent webinar hosted by The Block on “Central Bank Digital Currencies: Design, Policy, and Implementation,” one of the topics discussed touched on whether central banks have access to the technology needed to launch a CBDC.
According to John Kiff, senior financial sector expert at the International Monetary Fund, the technology supporting a CBDC platform has existed for a long time, similar to what is currently being used by commercial banks.
Thus, central banks should easily be able to leverage that technology if needed, especially in countries with underdeveloped financial sectors. However, improvements in technology such as distributed ledgers and APIs should allow central banks to work directly with the private sector in novel ways and potentially offer a CBDC solution, he said.
Moreover, the motivation and attitude towards the central bank have also changed over time which in turn is the driving force behind interest in CBDC, per Kiff.
“In some economies, Sweden's one of them, cash is being driven into a corner, and payment services are being dominated by private sector payment services. (...) 80 or 90 percent is controlled by one single institution that actually is at risk of moving them, the control of that payment system, outside the country,” Kiff said.
He further stated that Sweden and some other central banks are considering solving monopoly distortion problems with a CBDC solution.
“There's a possibility that it could use that monopoly power by offering expensive or not inadequate services. You also have a single point of failure issues that you may not be able to deregulate away because you could sculpt one big mega institution controlling all of the payment services," he remarked.
Additionally, Kiff also discussed what he referred to as “the new threat” for central banks: Libra.
“We will often say reducing or preventing the adoption of privately issued currency — that's what we say among ourselves in the official community — but really, Libra has kind of been a bit of a shock for many that have gotten central banks to compete in service,” he said.
Lastly, while summing up his point about CBDCs as a potential solution, Kiff said that in order for monetary policy to work effectively, some central banks are considering switching to CBDC.
“You can have a CBDC that bears interest, a variable interest rate, that could actually be used to work with enhanced monetary policy effectiveness,” he said.