- An OMFIF-IBM report talks about the challenges that the central banks are facing due to the advent of blockchain technology.
- To maintain control of public means of payments, policymakers are turning their focus to blockchain and other technologies.
Several central banks across the world are focusing on developing and issuing a cryptocurrency, owing to the fear of potentially losing monetary control. According to an IBM-commissioned report, a central bank digital currency (CBDC) could be ready in the next five years for consumers’ use.
The OMFIF-IBM report named “Retail CBDs: The next payment frontier” discusses the challenges that the central banks are facing due to the advent of Bitcoin and its underlying technology – blockchain.
The report stated:
Advances in financial technology are compelling central banks to react to emergent challenges from the private sector and address weaknesses in payment systems.
Researchers also claim that since the 2008 housing crisis, people do not trust financial institutions anymore. The distrust of central banks in developed economies has been increasing. As a response to these challenges, central banks are considering launching digital currencies in the next five years.
Researchers define the central bank-issued cryptocurrency as:
CBDC, central bank digital currency: a digital asset issued by a central bank for the purpose of payment and settlement, in either retail or wholesale transactions. A ‘retail’ CBDC would be used like a digital extension of cash by all people and companies, whereas a ‘wholesale’ CBDC could be used only by permitted institutions as a settlement asset in the interbank market.
The report has also indicated a decline in the usage of cash, especially in developing countries. In contrast, the usage of private, decentralized cryptocurrencies continues to increase. The OMFIF-IBM study found that the costs of handling cash and related logistical difficulties have increased. To maintain control of public methods of payments, policymakers are focusing on blockchain and other technologies.
The report added:
73% of central bank survey respondents would require retail CBDCs to be available under all circumstances and for all types of payments where cash is currently used.