IMF Official Says Private Sector Could be a Source of a Major Value for CBDC Launches in Future

According to one of the directors working at the International Monetary Funds (IMF), the private sector could be a source of a major contribution towards the technology that is being used to support central bank digital currencies (CBDCs) if countries decided to take this route. He was speaking at a conference held earlier called “Building CBDC: A Race to Reality” when he said this. The event was sponsored by the famous blockchain software development company R3.

During the speech, Tobias Adrian, the IMF director in question tackled the possibility of CBDC adoption in different ways. He presented two key models that he said could be used by any country for the provision of their own CBDC. The key difference in the two models was about how it would connect the different elements from the private and public sectors.

The first model that he presented was about creating a CBDC synthetically (sCBDC) and having it backed with the liabilities that the central bank has. The issuing of the CBDC, in this case, should be done with the help of a private-sector organization, for instance, a commercial bank. Adrian pointed out that roles should be divided strategically between both parties, with the commercial bank taking care of things like customer due diligence, currency distribution, and wallet design. The central bank, on the other hand, would be responsible for providing supervision to the commercial bank and regulating the whole project.

The second model is one where the involvement of the private sector is not really present with the central bank being responsible for both issuing the CBDC and also settling transactions for the same. The technology used for operating the CBDC in this instance would get occasional updates when the central bank finds it necessary.

By comparing the two, we could say that the process of innovation would be coming from the private sector for the first one and would be much more “active” than it would be in the second scenario. The commercial banks would be bringing new ideas much more freely and will be providing input at a much more “fundamental level,” said Adrian.

Adrian also said that innovation of this type “could be extremely valuable, given the pace of technological change, and given many central banks’ limited experience in providing retail services.” Of course, that was not a sweeping statement without an argument to counterbalance the positive impact that such a collaboration would have. Adrian pointed out that taking this path would also mean the creation of new types of problems. These are the type of things that can occur when a specific private bank gets involved in the innovation process. Issues arising from it could include things like unfair competition in the private sector, issues with interoperability with banks, and the stability of payment systems implemented in such a venture.

All these issues would not be present in the second model where the overall role would rest within the arms of the central bank. However, regardless of the option that a country went with, Adrian said that the country could get an “especially liquid and safe payment instrument.”

It is worth noting that these statements from Tobias Adrian seem to be quite well-timed. At the moment, several developed countries are looking into incorporating cryptocurrency into their financial systems via the introduction of CBDCs. Some names worth noting in such efforts include the Bank of England, Sweden’s Riksbank, and also the Bank of Japan. Even though these countries are not all the way open towards the idea, they are still cautiously and slowly moving forward with time. Seeing the launch of CBDC from them in the future would not entirely be an impossibility.

One country that is making headlines quite often with its boosted efforts for launching a CBDC is China. The People’s Bank of China (PBOC) is in the process of launching a two-tier model with natural control in the hands of the central bank. The country is working fast on coming up with a digital version of Yuan, the Chinese currency.

Bitcoin Crosses 10K

While all this is happening, the biggest cryptocurrency in existence, Bitcoin, finally crossed the $10,000 mark and is continuing to climb still. At the time of writing this, bitcoin is over $11,000. This and many other reasons are coming for analysts who are now beginning to believe again that bitcoin may reach an all-time high value in the coming days. However, even with all that, it still seems to in second place when it comes to an increase in value during the year 2020. Ether is moving along much faster than bitcoin, showing a gain in the value of more than 100%. Bitcoin is still lagging with an overall gain in the value of just 34%. Don’t worry though it is still managing to beat gold in terms of increment in value during the year 2020.

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