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Sibos 2023: Can CBDC replace cash?

At Sibos 2023 in Toronto, EY’s Christopher Woolard chaired a session on how digital currencies have made a big splash over the past few years and questioned whether they will be merely a drop in the ocean.


Sibos 2023: Can CBDC replace cash?


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In his opening statement, Woolard highlighted that while the cryptocurrency world had been dominated by private activity, the launch of Libra shifted focus and central banks are now coming to the party. Whether they are welcome or not is another question.

Woolard added: “Central banks are wrestling with public policy questions, not only about privacy, but also about monetary policy and what’s going to happen about individuals who may be more vulnerable or excluded from society.”

There is a lot happening in this space, and the distinguished panel spoke about moving beyond the hype, the various types of digital currencies being used today and how market participants envision them being used in the future.

Kicking off the discussion was Ryan Rugg, head of digital assets, TTS, Citi, who referenced the bank’s announcement on the creation and piloting of Citi Token Services for cash management and trade finance.

According to Citi, “the service uses blockchain and smart contract technologies to deliver digital asset solutions for institutional clients. Citi Token Services will integrate tokenized deposits and smart contracts into Citi’s global network, upgrading core cash management and trade finance capabilities.”

During the panel, Rugg also mentioned that by tokenising deposits, it “adds a 24/7/365 always on infrastructure. We’re currently live between the US and Singapore right now and where it gets really interesting is that we’re working with a federally regulated local network to make it not just a Citi token. We believe in multi-bank, multi-border.

“Also, with that, programmability enhances this and adds benefits to the bifurcated market. When I was at R3, we had started on public chains, we went to a private version of Ethereum. Right now, it looks like it going to be fungible in the future. It’s even compatible if regulation changes with stablecoins, or crypto and banks getting permission. We’ll have a platform built out for our clients.”

Scott Hendry, senior director, Bank of Canada, provided the central bank view on the vast number of developments occurring with digital assets. He mentioned that “the way to look at the development going forward that we need to think seriously about the benefits and the risk of all these different types of money.

“My point of view is that we exist now with multiple types of money and the future is going to be the same way. The technology underlying it, is for me, largely irrelevant. We must make sure that we can trust the money that we use, no matter where it comes from. We need central bank money, and we need private money, so whether it stablecoins or commercial bank deposits – tokenised or not – or even various forms of cryptocurrency, I think there’s a role for the multiplayer.”

Jack Fletcher, head of policy and government relations (digital currency), R3 – having been given permission to take a pointed view, said that there are two lines of debate at play here. “There are many motivators in the world for why you might develop a retail CBDC. One of the motivators is a trend that we’re seeing globally, which is cash is becoming redundant. This might happen in 10 years, 20 years or 100 years, but what is it that will replace cash?”

Fletcher went on to discuss how the industry should consider what from cash would society want to retain. The three characteristics he listed were that cash is central bank money, you can use it without providing your identity, and anything can be bought without resistance. “That’s the role of a central bank and governments to work out that balance between rights and responsibilities and how they play out.”

However, what has not been considered yet, is that people need to want to use CBDCs. Matthias Schmudde, head of payments division, Deutsche Bundesbank, explored this sentiment and explored how the digital Euro project is going. “The main aim is to make cash fit for the digital age and retail CBDC is something that will do this job,” Schmudde said.

Hendry shared this sentiment and said that the main reason for establishing a CBDC is demand from the public. Whatever is built, whether it’s from the private sector or central bank, it needs to be used by the public, it needs to be adopted to a certain extent, to achieve critical mass to form the network that is necessary to support the system, justify the investment and be useful to the people. Like Matthias, CBDC is about taking existing central bank money and making it more usable in the digital world.”

However, as Schmudde explained, “we are central banks. We are not fintech with a trial-and-error approach. It will take some time to get the buy in, and we think it’s important to explain, important to exchange arguments to come to a solution that is beneficial for everyone in the ecosystem.”

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Comments: (3)

David Hensley Founder at Enryo Limited

I doubt it will. Digitised cash solutions that provide instant settlement for SME market are more likely to gain traction. 

A Finextra member 

"the main reason for establishing a CBDC is demand from the public" - in which case all CBDC projects should stop immediately as there is no demand from the public. Most people have no idea what a CBDC is, or how it is different to cash or bank deposits, therefore to imply there is public demand is wishful thinking.   

In fact, where the public is aware of CBDCs there is considerable demand to prevent the introduction of a CBDC - witness the 50,000 responses to the BoE consultation on a CBDC, the majority expressing deep concerns with the project.

Stanley Epstein Associate at Citadel Advantage Group

Will CBDCs replace cash? No!
Cash is anonymous, not dependent on technology or on regulations that limit currency choice. 

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