Central Bankers Warn CBDCs Not Silver Bullet For Global Payments – BIS

Even with the advent of central bank digital currencies (CBDCs), senior policy-makers have said it will be some time before financial institutions can enjoy frictionless cross-border transactions.

As different jurisdictions work on different incarnations of digital fiat currency, whether their work be focused on the retail or wholesale side, the interoperability of the various incipient systems is still a leading concern.

“It may be that one form comes to dominate,” Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England, said at the Bank for International Settlements (BIS) Innovation Summit conference on Tuesday (March 23).

“But it’s much more likely that for the foreseeable future there will be different payment systems and different rails, and getting a payment from A to B may involve switching between payment rails at some point out of the wholesale system and into the retail system or between rails that don’t currently exist.”

Cunliffe, who also heads the Committee on Payments and Market Infrastructures within BIS, said that this perspective meant that addressing more prosaic issues like fractured data formats and the length of payment chains for international transfers were higher up the list of priorities.

He questioned whether authorities should even be providing anything beyond the infrastructure on which whatever stablecoin variant emerges onto the market and asked: “Do we actually need publicly issued money for citizens or can citizens rely on privately issued money properly regulated?” — an indicator of at just what an early stage thinking on CBDCs still is.

This reluctance to see CBDCs as a panacea for all cross-border payment woes was echoed by Cecilia Skingsley, deputy governor at the Sveriges Riksbank, who emphasised how much catching up retail payments still have to do.

“It’s obvious to say that we have reached a time in history where we have to realise that the money transfers and payment, in the way it’s serving the general public, is not up to scratch,” she said at the same conference.

“It works pretty well between advanced economies, but the longer distances you want to send money and the more you want to send money to emerging economies the outer stradas of the advanced economies become more like dirt paths as you try to make longer payments.”

For Skingsley, the value in CBDCs was not in providing a total solution to these shortcomings in international payments but rather a spur to private innovation made necessary by the stagnation of current offerings.

She compared the work on CBDCs to PostGirot, the money transfer network developed by the Swedish government in 1980s in response to a perceived reluctance on the part of the traditional banks to innovate beyond the then-common practice of mailing cheques and money orders as the standard means of moving funds.

“If we on the public sector side manage to provide the private sector side with enough competition I think it will solve [issues with speed and cost],” Skingsley said.

“The real improvement could happen in person-to-person and person-to-business payments.”

When it came to international payments, she similarly saw wholesale CBDCs as “one of” the solutions that could contribute to a more frictionless experience, echoing Cunliffe’s call for more harmonised regulatory approaches and calling for broader access to central bank settlement systems.

This attitude was also taken by representatives of the private sector.

Javier Perez-Tasso, chief executive of SWIFT, said that a CBDC “doesn’t necessarily solve all friction points” even as it made the process simpler through combining the transaction and its settlement into a single process.

He highlighted compliance checks, know your customer (KYC) controls and local data requirements as issues that would still have to be addressed by old-fashioned regulatory alignment.