BLOCKCHAIN
COVID-19 has prompted a fair amount of reassessment in the financial sector. But, in truth, digital disruption to the global monetary system was underway long before the pandemic emerged. Cash usage has been steadily falling – albeit accelerated over the past few months by a huge swing towards online shopping, while ‘bricks and mortar’ merchants have been reluctant to handle coins and bills, and encouraged by governments raising contactless card payment limits to make the digital switch. Meanwhile, digitally distributed stimulus payments to citizens and businesses, to protect them from the economic ravages of the pandemic, have, unsurprisingly, been seen as quicker and more efficient than simply sending out cheques. And alongside all this is the emergent parallel world of cryptocurrencies and stable coins. The change in how we pay and what we choose to pay with has far-reaching consequences – not least for central banks who preside over the world’s monetary systems. Many of them are now questioning whether the token of value on which they’ve built centuries of thinking and systems – cash – is really up to the job or whether they should now commit to issuing central bank digital currencies (CBDCs). It’s a huge step.
Central banks are being forced to respond to changes that challenge the foundation of monetary systems. R3’s Daniel Eidan says blockchain-enabled CBDCs could be one solution Daniel Eidan, global solutions architect, payments and CBDC, for enterprise blockchain technology company R3, which has been working with at least two central banks on Corda blockchain-facilitated CBDC projects, says the emergence of Libra – Facebook’s proposed stable coin – was a watershed moment. “Libra has awoken central banks to the fact that there are technology providers out there that have the network and technical capacity to challenge some of our assumptions around how we use money,” he says. As the Institute and Faculty of Actuaries noted in March 2019 in its paper Understanding Central Bank Digital
Currencies: “A switch from public fiat towards private electronic money challenges the definition of money, the access to legal tender, the role of central banks, the financial intermediation model and the transmission of monetary policy.” It added that central banks are now under pressure to respond. And one way they might do that is with CBDCs. As far back as 2015, Bank of England chief economist Andy Haldane floated the idea of using a blockchain-based central bank currency as a tool that would allow for negative interest rates to be sanctioned, if required. Fast forward five years and the bank’s March 2020 discussion paper, Central Bank Digital Currency: Opportunities, Challenges And Design, fleshes out a sterling-based CBDC in significantly greater detail. Of the many paths the BoE could take, building a fast, highly secure and resilient technology platform to sit alongside its real time gross settlement service with the necessary functionality for retail CBDC payments, would, it suggests, be easiest.
Disrupting the payments stack www.fintech.finance
Issue 6 | ThePaytechMagazine
69