Nov 21, 2023

According to the Atlantic Council, 130 countries are currently exploring a central bank digital currency (CBDC).

Video transcript

The state of crypto is presented by Tron connecting the world to the power of Cryptocurrency. According to the Atlantic Council, 100 and 30 countries are currently exploring a central bank digital currency. Joining us now to discuss is Atlantic Council Geo Economic Center, senior Director Josh Lipsky. Welcome to the show, Josh, thanks for having me. Thanks for coming back. We like having you on the show. Let's talk about the state of CBD CS, how they evolved this year as we head into December. Well, it's interesting, you know, I think we met probably 11 months ago and there were a lot of countries in the exploration phase. And what we saw over the past year was countries basically reaching the decision point. Do I want to put new resources to move past research into the development pilot or launch phase? So as you said, there's 100 and 30 countries exploring. But the figure I think is probably most significant for this discussion is 64. That's the countries that have moved past research and development pilot at launch. So 11 fully launched about 23 headed to the pilot stage another 20 or so in development. And what I find most significant this year is India doing wholesale and retail CBD C and the European Central Bank moving forward on the digital Euro plot. So some large economies, major central banks making progress. So the the you you you brought up India uh doing institutional versus retail uh for these other countries, for the 100 some odd countries. Uh What's the breakdown roughly of this? And, and, and where does it seem more natural that everyone's gonna kind of go towards the institutional side of it and, and not do the retail side because of its uh retails effect on the banking system. Should that happen? Yeah, it's, you know, it's interesting because the US is obviously more focused on wholesale and retail. That's very clear. The Europeans are more focused on retail and wholesale. A lot of countries are doing both India is actually exploring both simultaneously South Korea as well. I'd say if we look at the 130 together, it roughly splits even between wholesale in retail, but I give a caveat there because it's a little hard to say in the early stages of development. A lot of countries say we're exploring both and we haven't made a final decision. So it seems like countries start exploring both then choose one branch or the other. But the fact the US is leaning more towards wholesale is certainly something a lot of countries around the world pay attention to and just since Russia's invasion of Ukraine in the past two years, we see a doubling of interest in wholesale CBD C. And so you have to look at that as there is some debate happening around the world about new ways of exchanging money between commercial banks across borders and could wholesale CBD C be an avenue to do that. I think that has to be one of the main drivers behind the wholesale CBD C interest around the world. It, it is another fear though. And I, I brought this up and, and the question was whether or not uh if there's a retail CBD C, it might discourage banking in general and have a negative effect on the, on the overall uh structure of, of how financial institutions operate in each country. I it's definitely something central banks look at. You heard the IMF speak about this, this week with Kalman Go's big speech at the Singapore Fintech Festival, but they have ways to get around it. So this is the capping of CBD C holdings at roughly equivalent of 3000 or $4000. This is the way you prevent a run on the banks. So it's a risk, but it's a risk that can be mitigated. The other thing that's important to know about all the CBD CS is that they're intermediate. You know, this is something that's kind of a mythology around CBD C is you're going to have a fed app on your phone. Or a Bank of Japan app on your phone doesn't work that way. No country that's in a serious phase of exploration, disintermediate the banking system. So you use the banking system or other providers to deliver the CBD C. That's why I always say CBD CS are a public private sector collaboration if they happen if a country chooses to use it. So to your point, I think it's a risk but it's a risk that can be mitigated. One of the big discussions around CBD CS has been the discussion around privacy, especially when it comes to a retail CBD C. Um How are the countries that are exploring retail CBD CS addressing that if they are at all? Yeah, no, they are. I mean, the ECB has focused on this so much in their sort of detailing of how they're going to roll out the digital Euro project, especially as one of the largest central banks that's doing a retail CBD C and the jury is still out on this as well. We don't actually have all the details yet on the technology behind privacy protection and you have to figure out the balance here. You want anonymity. And what a lot of central banks are saying is that very low dollar amounts, $100 equivalent, $300 equivalent, we can have close to anonymity, very little information provided to transact, but just like in the US, if you transact over $10,000 in Cash Bank Secrecy Act, things have to come into play in terms of am l compliance, making sure money laundering isn't happening, cetera. So this is what central banks are trying to figure out through technology. How do you replicate the properties of paper, cash in digital form, preserving what people like about paper, cash anonymity, but also having the right balance there to make sure it's not being used for illicit purposes. And it's an ongoing and probably the most significant conversation happening between technologist, private sector and central banks right now to figure out if they can find a solution. Josh, we got to get your comments on this mastercard's lead for Blockchain Digital Assets for Asia Pacific told C NBC recently that customers are so comfortable using today's money that there's no justification for CBD CS right now. What do you make of those comments? So you know, this gets to the big conversation I always have about CBD CS and people say, well, I don't see a use for it right now, but central banks have a responsibility to future proof their money, meaning to see around the curve to say, well, hold on cash usage, paper, cash, you should may be dwindling. Do I need to have some public sector offering on this for the future? And I just think it's a mistake to look at the landscape as it is and say, I don't need it versus saying, well, is it useful to me to invest some small amount of resources to make sure I have it available if and when I want to use it, that to me seems like a forward looking way central bankers should think about protecting their fiat. So that's how I think about it. So it's not just about the landscape today, it's about what are things going to look like five or 10 years from now. That should be a more responsible way that all public sector officials have to think about currency since we last spoke. I A as you mentioned that there have been all these studies and tests of, of CBD CS. Uh Have we learned anything new uh in the past few months that might change the way in which people should be discussing CBD CS. So here's what I've learned since we last spoke about it. There is, you know, an understandable concern that CBD CS will compete against stablecoins, specifically dollar back stable coins of which of course, most stable coins are pegged to us D. And that makes sense intuitively, especially if you have a fed coin or you know, a federal reserve CBD C. But in what we've seen so far in countries that have launched or and piloted stablecoin usage and Cryptocurrency usage increases along with CBD C distribution. And I think we just have to think about what that means. These are small use cases, Nigeria, only a few countries have fully launched. But I raise that point because there's so much we don't understand about how CBD C impact monetary policy, transmission of fiscal policy. What it means for other digital asset adoption. And I just caution everyone to not get into camps of CBD C, anti CBD C versus thinking about exploration in digital assets and what we can learn from that. So that's what I've learned in the past year. The things I thought were true about CBD CS going in don't always play out when they're introduced on the ground. All right, and quickly before we go to the Atlantic Council, Geo Geo Economic Center is also holding a conference soon that focuses on the challenges and international standards of developing CBD CS. Talk to us about what you're hoping. Uh those discussions lead to. Yes. So one week from today, we're convening in Washington, central bankers from around the world, private sector, stable coin providers, finance ministries. The whole idea here behind this conference that we're doing with digital dollar project in Atlantic Council, is that so much of these conversations happen only in the public sector or only in the private sector. So we've all been to these conferences where you know, they say, oh, we don't want CB. Meanwhile, the G 20 payments working group meets and they say we're moving forward on CBD C, we're trying to bridge those worlds together because as I said at the beginning, CBD C, if it happens has to be a public, private sector collaboration just like fiat money is now the central bank issues it but commercial banks make it available to everyone. And the idea for this conference is to start talking about interoperability, cross border transfers. We don't want a world that's fractured and fragmented where you have CBD CS introduced that creates more frictions in the system. The whole idea is to have less friction in the system. And so we hope we get to some conversation here in this conference that says this is what growing international standards, privacy protection should look like around the world as these assets develop.

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