WEF Supports CBDC Adoption And DLT Use
The World Economic Forum (WEF) has published its views about the central bank digital currency (CBDC) following the Reserve Bank of Australia’s (RBA) move to launch its CBDC project.
WEF Takes on CBDC
A statement from the RBA on August 9 revealed that it plans to unveil its pilot CBDC initiative in Australia. According to the RBA, it has a one-year collaboration with the Digital Finance Cooperative Research Center (DFCRC) towards exploring CBDC adoption.
Moreover, the partnership aims to find the best possible use cases and models for introducing digital currency in the country.
In its report, WEF noted that the European Central Bank (ECB) describes CBDC as a safe and secure digital currency issued by the government. In addition, the ECB forecast for the currency is that all European countries will launch their respective currencies in due time.
Furthermore, the WEF reiterates that CBDC is a risk-free asset compared to privately-issued digital tokens because they do not come with volatility. As a result, entities can store their CBDCs in the bank or their mobile app for retail transactions.
Per the WEF, CBDCs perfectly complement physical fiat cash that users can present for faster payments.
WEF on Benefits of CBDC
The forum disclosed that the motive behind the concept of the CBDC is to aid transactions, store assets, and avoid loss. More importantly, it will accelerate financial inclusion by accommodating the unbanked population.
This will make financial services more accessible and faster for many people. In the event of a low physical cash supply, CBDC can help strengthen financial institutions’ resilience by being an alternative for use.
Regarding using DLT to curb financial crimes, the WEF noted that CBDC would serve as a potent tool for its effectiveness. CBDCs will help improve the implementation of “knowing your customer” (KYC) and boost cash flow transparency.
The RBA is not the only financial regulator seeking to introduce CBDC; other central banks are also actively working on their version of the currency.
Since cryptocurrency started gaining traction, governments worldwide have been working on CBDC and distributed ledger technology to facilitate payments.
The core area of interest for CBDC is retail CBDC for payment for goods and services and wholesale CBDC for large businesses.
Meanwhile, the WEF works with central banks to design and implement CBDC and DLT adoption policies in their jurisdictions. The forum emphasizes utilizing the ledger technology by researching inputs from all sectors. In addition, it also aims to ascertain the risks that come with the implementation of innovative technologies like CBDC.
However, amid the positive benefits of CBDC, it has some inherent risks to the broader financial sector. Experts believe that it has the potential to disrupt the stability of a country’s economy. The increased use of CBDCs will reduce the use of banks.
This will also decrease the number of bank deposits since individuals could opt for CBDC to store their funds.
The benefits and uncertainties are worth considering, and future deliberation will likely determine the outcome.
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