OMFIF Founding Member: We May See “Major” CBDC Adoption in Next Five Years
Sky Guo is a founding member of the OMFIF Digital Monetary Institute — a global banking think tank. Recently, the organization has helped policymakers navigate Central Bank Digital Currencies (CBDCs). Sky recently sat down with The Tokenist to speak on a number of important issues related to CBDCs.
The Tokenist (TT): Hello Sky, thanks for taking the time to speak with us today. Can you introduce yourself to our audience by describing your role with the OMFIF Digital Monetary Institute along with the organization’s mission?
Sky: Cypherium is an enterprise-focused smart-contract platform and a founding member of the Digital Monetary Institute of the Official Monetary and Financial Institutions Forum (OMFIF). OMFIF is a London-based central banking think tank. Together with Cypherium and a handful of other public and private institutions, OMFIF launched the Digital Monetary Institute (DMI) in May 2020 to focus on payments instruments in wholesale and retail markets, and, in particular, the development of central bank digital currencies.
TT: What are the most significant benefits of CBDCs? Are they so great that you consider CBDCs an inevitable aspect of our global banking system?
Sky: It seems they are inevitable, yes. CBDCs will revolutionize the global financial system if they are adopted across the board, and given the competitive nature of our globalized economy, once one nation reaps the benefits of digital currency, others will have no choice but to follow.
CBDCs eliminate unnecessary intermediaries that drain time and resources from transactions; they widen economic participation to those traditionally excluded, the unbanked and underserved; they make cross-board payments far simpler, fostering global trade; they make monetary policy much more effective on a domestic level.
There are many other benefits that make CBDCs seemingly unstoppable, but at Cypherium we most look forward to the way this technology might foster a new level of economic activity that could not have been possible without it.
TT: Europe seems to be ahead of the game with CBDCs, at least compared to the US. While Federal Reserve Chairman Jerome Powell has suggested the US is “looking at” CBDCs, the ECB has assembled a task force to assess their usability. What’s the current status of CBDCs within Europe?
Sky: You’re right that the Eurozone has been proactive when it comes to the adoption of this technology, but they are by no means alone in that. Major economies throughout Asia and Africa, as well as developing counterparts have also been on the forefront of this new wave.
The Eurozone has a unique opportunity in that the Euro is used in a variety of ways in different nations, which makes experimentation slightly easier. Countries like France and the Netherlands can take on trial periods with different approaches to determine what is best for the continent as a whole. It’s a very exciting time for financial instruments in these economies.
TT: What needs to happen before the world’s leading central banks implement CBDCs? What’s being done now to facilitate this?
Sky: Well, in short, CBDCs need to prove that they will not lose the value and norms of paper currencies, to which global populations have grown accustomed. Certain aspects of paper money, such as its anonymity and privacy, cannot be sacrificed in the name of expedience.
There are also issues of coordination among a country’s public and private enterprises, as well as among different national economies. Cypherium’s Digital Currency Interoperability Framework addresses these concerns. It strives to make the economic rights of domestic citizens unimpeachable, while fostering trade and development among wholesale and retail markets both within national economies and among central banking systems.
TT: How will the implementation of CBDCs impact the experience of the end user when it comes to paying for goods and services?
Sky: To answer this, one can look at present-day China. Already well over 80% (closer to 90%) of domestic Chinese transactions happen digitally on one’s phone. At the point of purchase CBDCs would make retail far more seamless for both customers and vendors. Lots of infrastructure must be built, of course, with the utmost security in place in order for this to scale, but blockchains would be the most secure framework for such an immense system.
TT: What sort of a timeline do you feel is associated with CBDCs? In other words, when do you anticipate they will experience adoption?
Sky: We are already in the early adoption stage. Particularly with the DC/EP project from the People’s Bank of China, as well as corresponding projects throughout Europe and across the globe, we might be poised to see major adoption in the next five years. Certainly, it seems, within the next ten years, CBDCs will become a global standard.
However, this does not mean that by 2030 paper cash will be extinct. There will arise through this process of growth and discovery a new use for paper currency. Particularly, as there are undeniable benefits to cash that CBDCs will never replace. We believe that these systems are going to coexist, in different proportions for the foreseeable future.
TT: Due to concerns over COVID-19, there is a growing push for contactless financial transactions. While a cashless society seems inevitable at some point in the future, what kind of impact will CBDCs have on cash? Will it lead to less cash in circulation?
Sky: CBDCs will definitely lead to less cash, but it seems unlikely that they will completely eliminate the need for it. Cash is private in a way that CBDCs never will be; cash has a physical presence in the world that CBDCs cannot replicate. These two features alone make it overwhelmingly likely that cash will coexist with digital currency for decades.
TT: We’ve recently conducted a massive survey which suggests an increased rate of Bitcoin adoption over the last three years. What kind of an impact do you think CBDC implementation will have on the adoption of Bitcoin?
Sky: Just as it is increasingly obvious that CBDCs have certain benefits over our current system, it is getting harder and harder to deny that cryptocurrencies will be a serious part of our economic future. The last four months alone have demonstrated that private digital currencies are a good and necessary part of a globalized economy.
We are seeing large institutional players from Wall Street to sovereign wealth funds to major international enterprises begin to enter the Bitcoin/blockchain space. They are here to stay.
Accordingly, for CBDCs to usher in a new era of regulation, they must be able to interact with Bitcoin and other cryptos. This is another important aspect of the Cypherium Digital Currency Interoperability Framework.
This new technology enables cross payments between public and private digital currencies. This will be hugely beneficial to both national currencies as well as cryptocurrencies. It is always an exciting time to be in the crypto space, but really, now more than ever!
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