Lental banks around the world continue to consider issuing their own digital currencies (central bank digital currencies, or CBDC). The People’s Bank of China (PBC) launched a trial of its e-CNY in Shenzhen in 2020 and has since expanded its use to other cities. Sveriges Riksbank is testing its e-krona for commercial and retail payments in Sweden. Even the US Federal Reserve, which is rather hesitant on this subject, published a document weighing the pros and cons of CBDCs.
One of the arguments put forward is to bring modern payment technologies within the reach of people excluded from the banking system. But the experience of countries like India suggests that there are more direct ways to achieve this goal. The Indian government has required commercial banks to offer savings accounts free of charge and without minimum balance requirements, and public banks to offer such accounts to rural residents without access to banking services. In 2021, 400 million of these “popular accounts” have been opened.
India has also created an efficient and inexpensive electronic payment infrastructure, the Unified Payment Interface (UPI). UPI is a real-time payment system operated by the National Payments Corporation, a not-for-profit organization. Banks, e-money companies, and technology companies have launched UPI-enabled mobile payment apps, allowing users to send money between bank accounts.
Cross-border payments made easy
Yet, while some three hundred banks participate in the system, the government wants to set up a CBDC, which from a financial inclusion and ease of payment perspective would be redundant.
It’s true that CBDCs can make cross-border payments cheaper and easier. Additionally, given the United States’ reliance on financial sanctions, CBDCs may offer an alternative to dollar dependency. There are indeed no technical obstacles to their use for international payments. Multiple CBDCs can run on a single blockchain. With the help of the Bank for International Settlements, central banks have experimented with platforms for this purpose, mBridges.
However, there are formidable political obstacles. Can we imagine that China and the United States agree on the management of such a platform? And a fortiori one hundred and twenty central banks? China’s rapid move towards issuing a CBDC is already seen as a threat to dollar dominance.
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