Fintech Experts Warn Against CBDC Overhype

Digital currencies are increasingly entering the limelight but central banks should think carefully before issuing their own, according to multiple fintech specialists who warned against issuance for the sake of issuance.

According to the Bank for International Settlements, more than 80 percent of central banks are engaging in some form of exploration into central bank digital currencies (CBDC), be it research, trials or implementation.

But while it may be prudent to conduct due diligence exercises to understand new developments, it may not necessarily be sound for everyone to act on such information.

«I think there’s generally a lot of hype out there and fear of missing out,» said IMF economist and digital expert on transformative technologies Sonja Davidovic on a panel during the Global Digital Currency Forum 2021 this week. «It’s not the right way to think about issuing CBDCs because it’s a complex endeavor. I don’t think every country necessarily needs a CBDC.»

To CBDC Or Not To CBDC

CBDC is a means to an end rather than an end itself, according to the panel of fintech experts who underlined the important of utilizing the technology as a way of achieving policy outcomes.

For example, remittance-oriented nations may want to enhance cross-border payment capabilities. Financial hubs, on the other hand, maybe more focused on improving efficiency in capital markets in aspects such as instant settlement and clearing.

«It’s very important to understand what exactly are your motivations before you get into developing a CBDC because every economy, every country is structured differently,» said Indra Suppiah, APAC government relations lead at R3. «I always say: development of CBDCs is actually not a technology-led exercise but that technology solutions are merely supporting the implementation of policy decisions.»

China Lead

Currently, China's CBDC efforts are leading nations worldwide with multiple trials completed and plans for a further rollout during the 2022 Winter Olympics.

Chinese officials have underlined various use cases for its CBDC including a focus on providing alternative cash, internationalizing the yuan and fair competition, with the latter aspect producing the additional effect of better interoperability.

«It’s quite striking. You can’t pay from your WeChat wallet to your AliPay wallet,» said Syed Musheer Ahmed founder of Finstep Asia and co-founder of the Fintech Association of Hong Kong. «Now with eCNY, interoperability becomes necessary.»