The wave of digitalization is coming, can CBDC reshape the world's financial structure?
Driven by blockchain technology, the development of global digital currencies has accelerated. Not only major institutions have begun to adopt digital currencies such as BTC, but central banks of various countries are also intensively deploying central bank digital currencies (CBDC).
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The current state of cross-border remittances
At present, most of the cross-border remittance business in the world needs to be completed through SWIFT, and international cross-border transactions are basically based on the US dollar, which has led to SWIFT and the US dollar having too much power to speak.
Since each fiat currency has its own unique clearing system, the existing cross-border remittance system can only conduct multi-step operations through correspondent banks located in different countries. For example, the US dollar cross-border payment settlement system adopts CHIPS, the euro adopts EURO1, the Japanese yen adopts FXYCS, and the renminbi (RMB) adopts CIPS. Cross-border payment involves many participants, time zones, jurisdictions and regulations, etc., which is inefficient, opaque and costly. At present, the average cost for consumers to send cross-border remittances through correspondent banks is US$25 to US$35 (sometimes even as high as US$50), which is more than 10 times the average domestic ACH payment cost (source: McKinsey & Company 2019 International Payments Report), and a large Some cross-border remittances still take 3 to 5 days for clearing and settlement.
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CBDC can serve more people
With the rapid development of mobile payment, cashless payment has become a trend, but there are still many people around the world without bank accounts. According to a 2019 Federal Deposit Insurance Corporation report, 5.4 percent of U.S. households have neither savings nor checking accounts, and with 1.7 billion unbanked adults worldwide, unbanked means they It may not be possible to directly use the bank intermediary payment system, and a CBDC based on blockchain technology can meet their needs.
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Global CBDC enters the fast lane
At present, most central banks in the world are actively exploring and promoting the development and pilot projects of CBDC. According to the survey data released by the Bank for International Settlements, 80% of the 66 central banks in the world said they were researching digital currency technology, and about 20% of the central banks said they might issue digital currency in the next six years.
In terms of implementation, the Central Bank of the Bahamas has issued the world's first CBDC - the Bahamas Sand Dollar, the Monetary Authority of Singapore (MAS) has introduced the Ubin project, and Cambodia's Bakong plans to issue the digital currency "Bakong Coin". On February 24, 2021, the People's Bank of China disclosed that the Hong Kong Monetary Authority, the Central Bank of Thailand, the Central Bank of the United Arab Emirates and the Digital Currency Research Institute of the People's Bank of China (referred to as the "Central Bank Digital Research Institute") announced the joint launch of a multilateral central bank digital currency Bridge research project (m-CBDC Bridge), this project further studies distributed ledger technology (DLT), realizes the all-weather synchronous delivery (PvP) settlement of the central bank's digital currency for cross-border transactions, and facilitates the exchange of local and foreign currencies in cross-border trade scenarios.
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What kind of CBDC does the market need?
As the weathervane of the future economy, CBDC has become a new competition track for various countries, but not all central banks are capable of creating CBDC. For central banks in small countries, it is incapable of creating and rolling out the infrastructure supporting CBDC, which includes from core functions to application-level interfaces (such as digital wallets) and ways to integrate into existing payment infrastructure.
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Globally integrated CBDC
To build a globally integrated CBDC infrastructure, a chain and network based on common governance is needed to integrate the issuance, management, distribution and interoperability of CBDC in various countries in one network.
Blockchain technology provides the most feasible opportunity for a globally integrated CBDC, but it requires the central banks of all countries to abandon their silos and work together as super nodes to truly unify the global payment system. It can also greatly improve the efficiency of cross-border remittances, thereby completely changing the fragmented situation of global finance.
With the rapid development of the digital economy and digital currency, countries will continue to increase investment in research and development of digital currency and CBDC, and technology, compliance, and speed may become obstacles to the rapid development of central banks in various countries, especially small countries. A governed CBDC solution could be a booster for it to catch up with its competitors.
