The global mobile payment market is currently estimated at US $816.5b, and it is expected to exceed US $5.5t by 2025. Our payment and transaction methods will change dramatically. Judging from the rumors surrounding the central bank’s digital currencies (cbdcs), the possibility that we will spend and exchange on the blockchain ledger soon is quite high. Just last month, at the annual meeting of the world economic forum in Davos, one of the most discussed topics was cbdcs, and how countries issue, manage, manage and use digital currencies. We even invited J. Christopher Giancarlo, former chairman of the US Commodity Futures Trading Commission, to announce the launch of a new version of digital dollar.

The Bank of International Settlements estimates that more than 80% of central banks regard blockchain as a place to issue digital currency, and central bank digital currency (CBDC) is expected to achieve standardized and compliant payment through faster settlement and enhanced liquidity management. Just last month, we heard that the central banks of Cambodia, Japan and the United Kingdom are exploring the benefits of CBDC. They have joined many emerging markets and developed countries, such as Thailand, China, India, Sweden, Singapore and South Africa, and they have started to study digital currency prototypes. Among them, emerging market countries are more advantageous than developed countries in issuing and adopting pure digital currency strategy. Even the European Central Bank is studying how to digitize the euro.

Will central bank digital currency be a killer application?

Central Bank continues to explore CBDC

But what’s the problem now?

As we all know, most of the payments in developed countries are already digital payments. For example, when we remit money abroad, we don’t have cash in our hands; instead, funds are transferred from bank accounts, so they are already “digital.”. When we talk about payment in general, we can usually identify two groups of transactions: one is bank to bank transaction, the other is individual transaction or “retail transaction”. In both cases, we can clearly identify the current pain of growth, such as the availability of funds, foreign exchange transaction costs, operational risk, settlement risk, visibility and traceability. For example, the following are the main components of cross-border transaction costs, which can be reduced by introducing the blockchain layer and real-time summation system (RTGS)

Will central bank digital currency be a killer application?

Who will lead the digital transformation?

In 2019, we saw the launch of Libra by Facebook, which is an effort to solve some of the above problems, but in fact, based on the lack of trust of regulators in the sponsor Facebook, the initiative faces a lot of regulatory scrutiny. Apple, another giant technology company, has teamed up with Goldman Sachs to issue its own credit card, which has been integrated into the popular iPhone, an effort that once again faces questions about interest rates and diversified approval rates. Central banks, on the other hand, are generally more trusted than private enterprises in issuing money and making payments. For example, I think China is one of the first countries to adopt and implement the pure digital currency strategy. This will be a relatively easy task for highly concentrated countries that already have advanced payment infrastructure. In fact, China’s mobile payment market has been controlled by Alipay and WeChat. China can easily deploy large-scale CBDC with the help of the Chinese people’s Bank of China (PBoC)’s implementation of the digital payment DC/EP scheme.

Why use blockchain?

First, not all digital currencies or payment systems need blockchain; for example, fednow’s real-time payment system may not have blockchain components. Don’t be confused, central banks don’t see any existing public blockchains as a viable option. Instead, they are all researching and testing. Perhaps private, licensed blockchains will meet their goals. The typical layered enterprise architecture with blockchain as the core is very suitable for handling the load and throughput of such payment systems. By adding blockchain or other distributed ledger technology as the basic component, the issuing bank can have all the benefits of token based accounts within a sound legal framework, such as enhanced privacy, faster back-end reconciliation, fewer errors, capital predictability, end-to-end KYC and AML rich transactions, and lower costs.

One of the main advantages of current cash is that they are completely interchangeable, which can also provide enough privacy for end users through the computational balance between transparency and privacy protection encoded into the core blockchain protocol. Most importantly, with the introduction of the widely accepted CBDC, we can obtain greater security and insurance protection to prevent the fraud and theft of our digital wallet funds. What is certain is that in 2020, we will see a lot of activities around the central bank’s digital currency, and their use may become the de facto killer app of blockchain technology. This is an issue that we have been studying in the past and attributed to digital identity or voting systems, but it turns out that their development will take longer. Now, with China and the United States participating in the digital currency competition, I am very sure that CBDC can become the first such large-scale production deployment of blockchain technology.

Editor in charge: CT

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