There isn’t enough justification for the widespread use of central bank digital currencies right now, which makes broad adoption of such assets “difficult,” explained Ashok Venkateswaran, who leads Mastercard’s blockchain and digital assets in Asia-Pacific.
“The challenging aspect is getting people to use them. If you have central bank digital currencies in your digital wallet, you should be able to spend them wherever you want, similar to using cash today,” Venkateswaran added while attending the Singapore FinTech Festival on Wednesday.” Countries all over the world, including the U.S. and China, are competing to be leaders in the financial technology industry.
Exploring Central Bank Digital Currencies (CBDCs)
A retail CBDC, which is the digital version of traditional currency issued by a central bank, serves individuals and businesses, making everyday transactions easier. It’s distinct from a wholesale CBDC, which central banks, commercial banks, and other financial institutions use for large-value interbank transactions.
The International Monetary Fund has expressed that CBDCs are a secure and cost-effective alternative to cash. About 60% of countries worldwide are exploring CBDCs, but only 11 have implemented them. An additional 53 are in advanced planning stages, and 46 are researching the topic as of June, according to data from the Atlantic Council.
“But [establishing the necessary infrastructure for this] requires a significant amount of time and effort on the part of the country. However, many central banks nowadays are becoming more innovative by closely collaborating with private companies like ours to build that ecosystem,” explained the Asia-Pacific lead.
Despite these efforts, Venkateswaran noted that consumers are “so accustomed to using today’s forms of money” that there isn’t sufficient reason to introduce a Central Bank Digital Currency (CBDC).
Mastercard’s Recent Developments in CBDC Testing
Last week, Mastercard, the second-largest card network in the U.S., announced the completion of testing its solution in the Hong Kong Monetary Authority’s e-HKD pilot program, simulating the use of a retail CBDC, such as electronic Hong Kong dollars.
Hong Kong’s CBDC sandbox allows for experimenting with creating, distributing, and using e-HKD within the program.
Sixteen companies from various sectors, including finance, payments, and technology, such as Mastercard, participated in the pilot. Visa, a competitor to Mastercard, also joined the project, along with HSBC Bank and Hang Seng Bank, to test the feasibility of tokenized deposits in business-to-business payments.
Venkateswaran pointed to Singapore as an example where the argument for a retail CBDC is not strong enough, given the city-state’s already “very efficient” payments system.
IMF’s deputy managing director Bo Li recognized Singapore and Thailand in Asia for making rapid advancements by linking fast payment systems, leading to reduced transaction fees for cross-border payments last year.
Venkateswaran stated, “There isn’t a need for a retail CBDC [in Singapore], but there is a rationale for a wholesale CBDC for interbank settlements.”
Singapore’s Central Bank Initiates Pilot Program
On Thursday, Singapore’s central bank announced plans to pilot the actual issuance and use of wholesale CBDCs starting in 2024.
Throughout the trial, the Monetary Authority of Singapore, led by Managing Director Ravi Menon, will collaborate with local banks to assess the use of wholesale CBDCs for facilitating domestic payments.
According to Venkateswaran from Mastercard, the effectiveness of implementing CBDCs depends on the specific needs or issues a country is addressing. He emphasized that it’s not a suitable solution if the goal is simply to replace an already well-established domestic payment network. However, in countries with less robust domestic payment systems, having a CBDC might be a sensible option.
Mastercard’s Ashok Venkateswaran notes the difficulty in justifying widespread use of central bank digital currencies. Their necessity varies by country. Recent developments, like Mastercard’s CBDC testing and Singapore’s wholesale CBDC pilot, show ongoing efforts and diverse perspectives in the changing financial landscape.