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Central bank digital currencies as superheroes?

Summary:
Tara Rice, Head of Secretariat, Committee on Payments and Market Infrastructures at BIS in this speech compares CBDCs to superheroes who can do all: Last year’s CPMI CBDC survey showed that financial inclusion and enhancing domestic payments efficiency and safety are key motivations of central banks for issuing CBDC. These are followed by financial stability and monetary policy-related reasons. But CBDCs are seen by many central banks as an opportunity to enhance cross-border payments, as well. Cross-border payments can be defined as where the payer and payee each reside in a different jurisdiction, most often with a different currency. As you might have experienced yourself, cross-border payments have four primary challenges – they are generally costly, can be slow, suffer from low

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Tara Rice, Head of Secretariat, Committee on Payments and Market Infrastructures at BIS in this speech compares CBDCs to superheroes who can do all:

Last year’s CPMI CBDC survey showed that financial inclusion and enhancing domestic payments efficiency and safety are key motivations of central banks for issuing CBDC. These are followed by financial stability and monetary policy-related reasons. But CBDCs are seen by many central banks as an opportunity to enhance cross-border payments, as well. Cross-border payments can be defined as where the payer and payee each reside in a different jurisdiction, most often with a different currency. As you might have experienced yourself, cross-border payments have four primary challenges – they are generally costly, can be slow, suffer from low transparency and are not widely accessible. Many of today’s frictions are rooted in differences among domestic payment systems (eg opening hours, technical standards, data requirements).6

In this context, CBDCs are seen by some as a superhero or superheroine solution; that is, as an opportunity to address all of the pain points in payments. Superheroes and heroines have fantastic abilities. They are full of possibilities. They come in many shapes and sizes: some are gifted with flight (like Captain Marvel), some with telekinesis (Wanda Maximoff), and others with super strength (Wonder Woman).

We could say that CBDCs also have many potential superpowers, or design features. They ought to have at least a “required” set of powers – perhaps strength and agility. Figuratively speaking, these ought to represent the prerequisites for a safe and secure CBDC.

CBDCs offer hope in improving payments generally, and in enhancing cross-border payments, more specifically. Like all superheroes, CBDCs do not need the full spectrum of superpowers. Having a few important design features could be sufficient for enhancing cross-border payments. Like Kamala Khan, whose powers include shapeshifting, elasticity, and size alteration – the ultimate power is perhaps interoperability. 

On that note, I’d like to focus my remarks on three topics related to how CBDCs can help on the international dimension of payments: (i) a taxonomy to describe the different forms and elements of cross-border interoperability; (ii) the conceptual trade-off between cost and complexity on the one hand and benefits on the other (which in this case would be mainly in reducing the frictions of cross-border payments); and (iii) some thoughts on lessons learned and the way forward.

Interesting analogy..

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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