One trend that CFOs need to watch out for in 2020 is the central bank digital currency (CBDC) — an idea whose time has come. The technology, in terms of the distributed ledger, has arrived, and various countries have announced low key pilots to explore the idea in greater depth. Except for China, of course.
According to reports in fintech media, the Chinese central bank, the People's Bank of China (PBoC), on January 10, issued a press release saying that it is almost ready with a new digital currency and is likely to debut the new currency called DCEP (short for Digital Currency/ Electronic Payment) in Shenzhen and in small experiments.
According to these reports, this would be the first legitimate digital currency vetted by a central bank, and is designed to replace what is known as the Reserve Money or M0. Built on the blockchain or distributed ledger technology (DLT) and cryptography, the DCEP will be pegged 1:1 to the yuan.
In the first phase, Chinese commercial banks will have access to the DCEP, followed by large companies such as Alibaba and Tencent. This news is in line with November 2019 a report on CNBC where Jack Lee, managing partner of HCM Capital, claimed that China's DCEP could be launched within two to three months.
While the central bank-backed currency has been long in the making in China, this time it appears that the final launch is close. According to the reports, the central bank has "completed the top-level design, standard formulation, function research and development, and joint testing," of the legal currency.
This development can be contrasted to the still tentative approach of the other major central banks. For instance, European Central Bank (ECB), which represents one of the largest economic and trading areas in the world, is still at an evaluation stage.
ECB President Christine Lagarde was quoted in a French magazine, Challenges, in early January, saying the, "ECB will continue to assess the costs and benefits of issuing a central bank digital currency that would ensure that the general public remains able to use central bank money even if the use of physical cash eventually declines.”
While the Reserve Bank of India is clearly anti-private cryptocurrencies, its views on central bank digital currency is unclear. Governor Shaktikanta Das, in a media interaction in December 2019, said that the RBI has examined the issue, but it believes that the technology needs further evolution.
Meanwhile, at the bank for all central banks, the Bank for International Settlements (BIS), the CBDC is still a work-in-progress. "There is still a lot of work to be done on this issue," said Hyun Song Shin, Economic Adviser and Head of Research at the BIS in mid-December.
Whether the CBDCs make their debut at the wholesale or retail level, it is quite clear that for finance professionals, a whole new world beckons.(The writer is a contributing author with Moneycontrol.)