CBDC: The Next Phase of Scrutiny

From banknotes, cards and mobile payments to cryptocurrencies and, more recently, Central Bank Digital Currencies (CBDCs), the world is witnessing breakthroughs in financial technology.

A new generation of payment services is here to stay and is challenging traditional payment systems and operations of central banks and financial institutions. “The case [for central bank digital currency] is about change – being open to change, embracing change, shaping change.” So stated Christine Lagarde, Managing Director of the International Monetary Fund in a well-articulated speech at the Singapore Fintech Festival 2018, calling on central banks to evaluate the importance of their roles in providing CBDC.

In the latter part of 2018, the Bank for International Settlements (BIS) conducted a survey involving 63 central banks representing jurisdictions that cover nearly 80 percent of the world population. The findings revealed that 70 percent of the respondents are currently or will soon be engaged in work on CBDCs. Almost half of these have moved on to proof-of-concept activities to test new technologies, an increase of 15 percentage points over the 2017 survey.

In 2020, the BIS published another paper on a survey involving 66 central banks in which 80 percent of central banks (up from 70 percent in 2018) are engaging in work on CBDCs, half of which are considering both wholesale and general purpose implementations. In addition 40 percent of central banks have progressed from conceptual research to experimentation and proof-of-concept, and another 10 percent have already developed pilot projects.

Evidently, the starting pistol has been sounded for central banks to thoroughly investigate the issuance of CBDC. Central banks around the world are now arriving at the investigative stage, developing a deeper understanding of CBDC and its outcomes. The capabilities of CBDC in enhancing payments security and efficiency, as well as promoting financial inclusion and integrity, are now conspicuous to central banks; however, the range of proposed implementation models in each economy remains both idiosyncratic and obscure.

ProgressSoft’s CBDC System Architect, Othman Darwish, notes that central banks need to “thoroughly examine the scope of CBDC implementations and determine the impact of wholesale CBDCs versus general-purpose CBDCs on the nation’s individualistic payments ecosystem.” He adds that CBDC is a “disruptive technology with many implications that need to be considered attentively and collaboratively, not only with other central banks, but with solution providers and digital currency experts that could provide central banks with insights on a case-by-case basis.”

Accordingly, ProgressSoft’s Blockchain-based Central Bank Digital Currency solution, PS-CBDC, was designed to accommodate all central bank motives and individualistic implementation strategies with modularity, auto-scalability, open integrators and built-in smart contracts as key attributes of the advanced solution. It is an inherently secure permissioned digital currency that is built on advanced blockchain technology and maintains a one-to-one exchange rate with fiat money. PS-CBDC comprises four major modules that take into consideration issuance, valuation, consensus, agreement and peer-to-peer domestic and cross-border payments, providing central banks with the benefits of immediate transfer of value, payments security, financial integrity, financial inclusion and financial market monitoring. This is in addition to the solution’s ability to improve application of anti-money laundering and combating the financing of terrorism, as well as satisfy numerous use cases for CBDC from interbank settlement and retail and individual payments to identity management.

ProgressSoft has been dedicating its efforts and resources and conferring with its globally renowned experts and consultants to provide central banks with comprehensive case studies, consultancy services and rollout proposals on top of its Blockchain-based PS-CBDC solution. Today, ProgressSoft is also ready to sandbox CBDC for central banks to assist in developing profound knowledge about this disruptive innovation and its implications.