It still serves a very good example of the scale of the challenge posed by ‘de nouveau’ payment systems particularly when allied with the reach of ‘big tech’ companies, and their inherent ability to rapidly develop products with monopolistic characteristics, which can result in unwanted dependencies and marginalization of access, amongst other things.
In light of this, it is unsurprising that China is very much at the vanguard of developing a CBDC, both given these salutary lessons about failing to closely monitor and regulate this rapid evolution of digital payments and financial services, as well as the implicit threat to the control of single party state. In China’s case a CBDC would clearly enable far greater ability to monitor and control everyday activity, as well a far more effective management of a financial sector, whose vulnerabilities have been exposed often brutally over the past two decades, and which de facto remains a serious barrier to the internationalization of the Chinese Yuan.
However, there are broader issues related to CBDC and digital payment systems, as the BIS report highlights. If cash effectively becomes a backup, the risk is that access to it becomes either selective and / or marginalised, and per se it would be ineffective in the event of a payments system failure. Modern day cash has evolved very sophisticated anti-counterfeiting techniques, which preclude any large-scale risks emerging. In the same vein, a CBDC could be subject to a successful cyber-attack, which would almost certainly escalate very rapidly, and quickly undermine confidence in the payments system, and as the BIS reports notes ‘defending against cyber-attacks will be made more difficult as the number of endpoints in a general purpose CBDC system will be significantly larger than those of current wholesale central bank systems.’ A CBDC system will also have to ensure large scale interoperability between payments systems, both domestic and cross-border which are often opaque, so as to insure against fragmentation, due for instance to often expensive cross-system charges. It will also need to address key social issues such as access to IT systems, financial digital literacy, and above all trust and data security. All of this underlines the final point that as much as a CBDC will be the provenance of sovereign states, the need for co-operation and a common set of standards is acute, and offers an opportunity to evolve and improve what remains a rather fractured set of global payments systems.
Marc Ostwald E:
marc.ostwald@admisi.com T: +44(0) 20 7716 8534
15 | ADMISI - The Ghost In The Machine | Q4 Edition
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36
