14 October 2021
CBDCs through the bankers’ lens
The emergence of central bank digital currencies (CBDCs) is gaining global momentum, with more than half of the world's central banks actively exploring their use. CBDCs have the potential to have profound implications for the global financial system, which need to be thoroughly assessed and calculated – including the impact on banks.
Some CBDC models imply outright disintermediation of commercial banks, while others allow them to remain well intermediated and sometimes even gain business advantages. During a session of Sibos 2021, a panel of representatives from commercial banks and central banks gathered to discuss and exchange views on the considerations for CBDC from their perspectives.
The central bank’s perspective
We begin by describing the vision from the central bank's perspective. Tom Mutton is present for this purpose. He is the director responsible for Central Bank Digital Currencies at the Bank of England. He explained how England’s central bank is investigating the opportunities of retail CBDCs with great interest and purpose. However, no decision has yet been made whether one is needed in the UK. “This would be a major innovation, but something that you will have to examine very thoroughly before deciding whether or not we should do it”, he said.
At present, central bank money – which is the safest form of money – is only available to individuals and to retail users in the form of banknotes. Making central bank money electronically available to a larger audience for the first time would be a big step. Much of the discussion and deliberation around retail CBDC is to what extent this is something that is needed and something that most people would value. In addition, we need to consider how a new form of money can support innovation in the payment system as a whole. In addition, we should also consider whether many of the benefits we seek from a CBDC for the retail sector could not equally well be achieved through private innovation. The Bank of England is a strong supporter of safe and responsible private innovation, Mutton pointed out.
One question you can ask yourself is why innovate if the current system works well? The panellists agreed that if a certain approach is working fine today, we should not just stick to that approach until it’s not working anymore. We should always continue to encourage further innovation. We should really be aware that people's payment needs can evolve quite rapidly and possibly even surprise us. Many people didn't want the iPhone when it was first launched and now, we can't live without one. CBDC therefore certainly has potential – provided it meets the strict security and safety requirements. In addition, it needs to become clear whether it is important for people to have access to such an additional form of money.
The commercial bank’s perspective
In her role as Head of Central Banks & MDBs, Florence Lubineau is responsible for managing relationships and originating business with Eurozone Central Banks and Official Institutions. She pointed out that as a commercial bank, it is crucial to understand the needs and desires of your clients. In this case, it is important to know to what extent clients see interest in new innovations such as CBDC.
As a commercial bank, it is relevant to be aware of market developments, such as the digital euro project announced by the European Central Bank (ECB) earlier this year. You must be aware of the impact an innovation can have on the banking system and the current business model. And in this case, there’s a geographical angle to it, because in Europe the creation and distribution of money is largely in the hands of commercial banks. Banks are systemically important to the economy and thus highly regulated. “We think that opening up access to central bank money to non-banks raises concerns about the asymmetry of treatment between payment service providers and banks. We must have equivalent rules and supervision for all actors”, she explained. Central banks are looking at providing access to the reserve system for a greater number of players, but those players will then have to be regulated like banks. That seems to be the direction that we’re moving in.
Opportunity for innovation
Even though financial institutions are sometimes at odds with each other and there is no clear conclusion (yet) as to whether CBDC is an opportunity or a threat, both parties support innovation in the industry. The two most important aspects for making CBDC widely accessible are security and safety. Ensuring that it meets these two requirements takes investment and time.
Innovation is part of Worldline’s DNA, and we welcome all digital payments initiatives. We are curious to see if in a few years, CBDCs will become as accessible as past innovations that we thought we didn't need... and are now indispensable in our lives.