CBDCs: The Policymakers' View of Global Finance 2.0

 

 

Leading experts from Banque de France, MAS, and IMF discussed current trajectories of CBDCs, emphasising the interplay between innovation, systemic stability, and industry collaboration.

 

CBDC Strategies: A Dual-Focused Approach

 

Banque de France:

  • Comprehensive Approach: Advocates for developing both retail and wholesale CBDCs:
  • Retail CBDCs: Enhance payment accessibility and autonomy within Europe.
  • Wholesale CBDCs: Mitigate risks in tokenised asset markets through secure settlement systems.
  • Collaborative Pilots: Partnered with MAS and others to explore tokenized central bank money using distributed ledger technology (DLT).

 

MAS (Singapore):

  • Prioritising Wholesale CBDCs: Retail payment systems in Singapore are already seamless, leading to a focus on wholesale use cases.
  • Addresses cross-border payments and tokenised asset transactions.
  • Global Layer 1 Initiative (GL1): Builds a public-permissioned blockchain for interoperability among financial institutions and networks.

IMF:

  • Global Landscape Analysis:
  • Retail CBDCs: Adoption is slower due to trust and behavioural inertia challenges.
  • Wholesale CBDCs: Accelerating interest in applications for cross-border payments and tokenised markets.
  • Three-Layer Impact Model: Examines effects on payment systems, transaction costs, and macro-financial stability.

 

Risks and Opportunities

Key Challenges:

  • Fragmentation Risks: Disconnected platforms hinder seamless tokenised asset and payment integration.
  • Stablecoin Proliferation: Rapid growth in stablecoins could challenge traditional monetary frameworks.

Central Bank Countermeasures:

  • Promoting Interoperability: Unified ledger approaches and cross-jurisdiction collaboration to harmonise systems.
  • Maintaining Financial Stability: Prioritising CBDC readiness to counterbalance risks from stablecoin dominance.

Interoperability and Infrastructure

Unified Ledger Vision:

  • Combines cash and asset settlements into a single integrated infrastructure.
  • European Approaches:
  • Banque de France: Tokenised central bank money on a dedicated DLT.
  • Bundesbank & Banca d’Italia: Enhanced existing systems like TARGET2 and TIPS for tokenised settlements.

MAS Frameworks:

  • Public-Permissioned Networks: Enable safe, scalable, and interoperable infrastructure for financial institutions.
  • Industry-Driven Initiatives: Collaborative ecosystems to scale tokenised asset use cases.

Stablecoins and Competitive Dynamics

Stablecoin Trends:

  • Outpacing CBDCs in transaction volumes and reserve holdings, with significant adoption in private markets.

Implications for Central Banks:

  • Balanced Ecosystem: Coexistence of stablecoins, tokenised liabilities, and CBDCs to address diverse user needs.
  • Strategic Response: Central banks must accelerate CBDC preparations to retain their role as trusted monetary anchors.

Future Directions:

  • Pathways to Scale: Focus on foundational infrastructure, robust interoperability standards, and wholesale CBDC access.
  • Global Harmonisation: Prevent financial fragmentation through aligned regulatory frameworks and technology standards.
  • Innovation-Driven Adoption: Support industry efforts to foster demand and adoption of tokenised systems.

 

The panel underscored the urgency for central banks to balance innovation with systemic stability. Collaborative efforts among regulators, industry leaders, and international organisations will define the future of CBDCs and their role in a dynamic global financial ecosystem.

 

Watch Full Session

 

 

Speakers:

  • Denis Beau, First Deputy Governor, Banque de France
  • Leong Sing Chiong, Deputy Managing Director, Monetary Authority of Singapore
  • Bo Li, Deputy Managing Director, International Monetary Fund

Moderator:

  • Prof. Bob Wardrop, Professor, University of Cambridge & Spin-out Founder, RegGenome
 
 

Join the GFTN Network