By
Tolu Ajiboye
April 17th, 2024
A new report from the World Economic Forum indicates that over 40 banks are considering offering their own blockchain cryptocurrencies.
The report was published earlier today and takes an analysis of how different central banks are either studying how the blockchain technology can be utilized or are outrightly experimenting with central bank digital currencies (CBDCs).
Most of these projects are aimed at resolving issues such as financial inclusion, payments efficiency, and cybersecurity.
The report further states that CBDCs (central bank digital currencies), which are issued on distributed ledgers and can be transacted in a peer-to-peer manner, will enable faster and more cost-efficient transactions.
Among the most noteworthy benefits of CBDC that the report lists are – the potential to improve Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures, reduce corruption, illicit activities and tax evasion, challenge commercial bank monopoly power of retail deposits and potentially provide alternatives to private sector payments technologies.
The report reads:
“Moreover, CBDC can potentially play an important role in a future where cash usage dramatically declines. If the use and availability of cash within a country becomes extremely low or non-existent, whether by policy or consumer preferences, then CBDC could potentially aid citizens.”
The report continues with a list of potential downsides of CBDCs, saying that banks should consider the challenges of blockchain technology, including transaction scalability, key management, transaction speeds, possible financial exclusion of populations who do not adopt CBDC — which could lead to further marginalization from digital payment systems — as well as risks to financial stability from bank disintermediation.
Couple of Central Banks Set to Issue a CBDC in the Next Few Years
Ashley Lannquist, a project lead in blockchain and distributed ledger technology at the World Economic Forum and the primary author of the report said:
“It’s very much the case that several central banks are looking at this. Pilot and experimentation work thus far on this subject has yielded some mixed results, some optimistic results, and the summary of where we are right now is that central banks are proceeding with caution, yet highly involved in research.”
She added that in the next couple years, speculating towards the future and being a bit conservative, she expects a couple of central banks to issue a central bank digital currency and that’s because we know that at least a few are.
Various banks and the degree to which they have executed blockchain initiatives are mentioned, including the Bank of France, which has fully deployed blockchain technology.
Others are not so far ahead at the moment, though from the report it appears that several banks have conducted heavy research and are executing pilot programs to refine the technology such that it suits their needs most appropriately.
The Bank of England, the Bank of Canada, and the Monetary Authority of Singapore (MAS) have taken a more extensive look at the space, compared to their central bank counterparts in other nations, by the looks of it. Yet central banks of nations from Lithuania to the Caribbean are also making headway.
The report notes that the Central Bank of Lithuania plans to issue a Digital Collector Coin to test the technology in a controlled real-time environment, while the Eastern Central Caribbean Bank wishes to test a digital Eastern Caribbean currency to foster economic growth.
Cambodia to Adopt Blockchain Tech in National Payments System This Year
Also, Lannquist mentioned The National Bank of Cambodia, that plans to incorporate blockchain technology for its national payments system by the end of this year.
As Lannquist’s report notes, the bank is looking to tackle two issues: many of the nation’s residents are underbanked or unbanked entirely, and the banking system itself is not very efficient. She explained:
“They currently have a very fragmented domestic payment system and many [residents] are unbanked. Instead of using the bank they use private payment apps that don’t even use the bank so they sometimes can’t pay each other.”
Lannquist added that the new blockchain-based payments system may serve to unite some of these disparate payment apps, providing more efficient payment and settlement services to Cambodia’s residents.
What’s perhaps most surprising about Cambodia’s plans is the fact that the bank is not going to start with a pilot program, but rather a large-scale deployment with 10 banks.