- The issuance of Central Bank Digital Currencies (CBDC) is the next logical in cryptoshpere
- Some banks have already piloted CBDC’s for their interbank transactions
- DLT developers have to make improvements
Central Banks could easily favor central bank digital currencies (CBDC) but only if the Distributed Ledger Technology (DLT) underwent some basic improvements. It is now up to the developers of blockchain technology to ensure it lives up to its hype.
DLT Needs Improvement
IT-giant IBM released a comprehensive report on Friday, October 26, 2018 that concluded that most central banks they included in their poll believe the issuance of Central Bank Digital Currencies (CBDC) is the next logical step as far as digital currencies are concerned.
The study was conducted by IBM and OMFIF, which is an independent central bank think tank. The institutions polled 21 different central banks between July and September 2018 and found that 38 percent of the banks already piloted CBDC’s for their interbank transactions. The report also states CBDCs have the potential to reduce credit risk should they be linked to stable fiat currencies.
The report, however, notes a missing link in the adoption of the Distributed Ledger Technology and concludes some improvements are needed as the banks that had tested the blockchain solutions said there was no marked increase in efficiency. The report reads in part:
“61% of the central banks said a blockchain may not be necessary as they observed few efficiency gains during trials, given the technology is still in early stages of development.”
According to the report, 76 percent of the respondents were not sure whether the developers of DLT would be able to deliver its promise especially in matters of compliance and regulation.
Several central banks have expressed interest in creating CBDCs with Sweden trailing the blaze towards a cashless society with the e-Krona CBDC they intend to launch. As per official reports, the e-Krona digital currency will be equivalent to the country’s fiat currency and is likely to be backed by IOTA’s blockchain technology.
Norway, on the other hand has similar plans with Norge’s Bank, the country’s central bank releasing a document where it expresses its intention to create a central bank digital currency that would be used a regular means of exchange. There are also unconfirmed reports that the Bank of England is also considering a CBDC in the near future. Other countries interested in CBDC are Ukraine and Canada and are said to be evaluating the possibility to issue these virtual currencies in the future.
The report concludes that for the listed projects to see the light of the day, DLT developers have to make improvements. The report reads:
“Central banks concluded that blockchain systems must improve before they can overcome issues of scalability and speed.”