Prepared and amended introductory remarks, UBS Reserve Management Seminar, panel Digital currencies: technological innovation in global payment systems and central banks, 30 Sep 2020
30 September 2020
[…] Accenture is involved in a number of CBDC projects, including with the Riksbank in the development for a technical solution for an e-krona as a retail CBDC, a series of CBDC experiments with the Banque de France to test different wholesale CBDC applications including in an international setting and supports the Digital Dollar Project to stimulate a public discussion about the case for a CBDC in the U.S. Several central banks consider introduction of a CBDC in earnest. I have no doubt CBDC will come soon. Covid-19 may also have accelerated that.
CBDC should be seen as an integral part of financial system modernisation. It is set to impact money and payments on three grounds: i) It is a new medium to complement existing monies and payment processes; ii) it brings forward deployment of token based payments and financial market infrastructures; iii) its main uses cases are where central bank money is the preferred payment means and where an extension of access to central bank money would be highly desirable.
I shall refer to CBDC as tokenised central bank money. It complements bank notes or paper money and reserves or book entries. The aim is for CBDC to expand functionalities and utility of central bank money to facilitate conducting transactions that are not possible or unduly complicated with existing mediums. Reference to CBDC as an accounts-based approach I believe is unfitting as an extension of central bank accounts would offer broader access to central bank money, something that had been possible for decades, but not a new medium or new functionalities. CBDC is comparable to the introduction of paper money in particular during the nineteenth century to complement specie-based payments at the time and facilitate new ways to conduct payments for which gold or silver were simply not adequate.
CBDC contributes to an important diversification and greater resilience of payments systems. It offers alternative payment rails and serves as catalyst for innovation bringing forward development of new payment means and supports token-based exchanges, custody provisions and other financial market infrastructures elements. It will support the build-up of token-based capabilities at banks. As such it helps expanding and deepening financial markets by advancing a broader set of financial instruments and possibly attract new actors that have shunned or have been unable to participate in existing financial markets.
CBDC will likely have its biggest impact where central bank money plays a special role. This is most likely in wholesale payments as central bank money is the safest money in any currency area and can serve mitigating risks associated with financial market transactions. International transactions would benefit most to address existing pain points associated with cross-border payments. CBDC would still be distributed to the domestic banking systems but could be offered to non-residents, intra-day or overnight, thereby allowing large value transactions to be conducted in central bank money in cross-border and off-shore settings. The programmability of tokens would offer central banks the possibility to maintain needed prudential safeguards while expanding settlement in central bank money. This would also possibly allow smaller currencies to play a bigger role in international transactions reducing dependence on key currencies today. It would mitigate risks in international payments reducing transaction costs and establish more of a level playing field between domestic and international agents thus increasing competition. CBDC could therefore transform the international monetary system as we know it.
Central banks will differ in their motives for adopting CBDC. Some will want to offer an adequate medium amid the increasing digitalisation of payments or replacement for cash. Others may want to use it to strengthen attractiveness of their currencies in an international context. The biggest impact will be where CBDC will allow to improve payments and in particular expand money uses cases.
Covid-19 has served as a reminder in part of the deficiencies of the national and international payments infrastructure. With a flurry of activities around CBDC, central banks seem to recognise that CBDC may indeed play a key role in strengthening and expanding the financial system to better accommodate actual and future needs. CBDC has become a question of when not if.