Government-backed digital money to represent $213B in payments by 2030

The global value of central bank digital currencies (CBDCs) will grow dramatically from $100 million today to $213 billion in 2030 once virtual money is used more for domestic payments, according to new data from Juniper Research.

In 2030, 92% of the total value has been settled CBDCs around the world will be paid domestically as cross-border payment systems face an uphill battle for adoption, Juniper predicted.

Backed by traditional fiat money such as the US dollar or British pound, the digital currency can bolster financial inclusion because customers don’t need a bank account to hold them; they can instead use encrypted “digital wallets” that exist in the cloud, on a desktop or laptop, or even on a USB storage device.

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For example, a cross-border CBDC payment system would allow immigrants to send money back to their countries of origin without having to pay exorbitant fees for electronic money transfers. Businesses could also make cross-border payments for goods and services with much cheaper and faster settlements.

According to Lou Steinberg, former CTO of Ameritrade and managing partner in cybersecurity, central bank-backed digital currencies would also reduce the cost of printing and replacing money, help improve fraud detection and make money paid to scammers more easily accessible. be detected and recovered. research office CTM Insights.

“It would simplify and speed up cross-border payments and reduce the cost and complexity of processing checks, wire transfers, etc.,” Steinberg said in an email response to Computer world. “Unlike cryptocurrencies like bitcoin, a currency backed by the full trust and credit of the United States or another trusted government would provide assurance that the value of the currency is carefully managed. A government can adjust everything from the money supply to interest rates while managing and preserving the value of a fiat currency.”

Digital currencies also eliminate the anonymous nature of consumer cash transactions. In places like China, where spending activity is closely monitored, that would let the government know what movies someone is buying tickets for and whether they are spending money at a bar. Those are hard to trace with cash.

The US has been a slow follower compared to other countries such as China and its digital yuan in developing a CBDC. Australia, China, Thailand, Brazil, India, South Korea and Russia already have pilots or are starting test programs this year. By 2030, the Bank of England and UK Treasury are planning to launch a digital pound or ‘Britcoin’ CBDC.

It matters which country’s digital currency is first widely adopted, because that government can set the global rules for most others, according to Steinberg. “Whoever sets up major international payment systems first will have a de-facto standard, one that latecomers will have to adopt,” he said. “The US continues to study a digital dollar, while others are making progress. We must prioritize a system for international payments and settlement based on a digital dollar, almost the equivalent of a next-generation SWIFT network.”

The functions and standards can be used to set up privacy or state surveillance and traceability. They may include a limited-use currency, such as a type of dollar that can only be used for stimulation but not saved, or a digital dollar food stamp.

“On the other hand, countries like Cuba have two types of currency and limit the use of one to foreigners only (so they know which of their citizens collect money from foreigners),” Steinberg said. “If we want Western standards on privacy, we have to set the standards. If we want the dollar to keep its role as a ‘reserve currency’, we have to set the standards for cross-border networks. Showing up late to the game means that according to playing someone else’s rules.”

All together, 114 countries representing 95% of global GDP are exploring the creation of CBDCs, according to the Atlantic Council, a Washington-based think tank. Only 10% have launched generic CBDC networks. Sixteen percent of the projects are in the pilot phase, 30% are in development and 27% are still in the research phase, according to the Atlantic Council.

“We’re behind. The good news is we’re starting to realize this,” Steinberg said of the US.

The Atlantic Council

In March 2022, for example, US President Joe Biden an executive order issued calling for more research into developing a national digital currency through the Federal Reserve Bank, or “The Fed.” The order highlighted the need for increased regulatory oversight of cryptocurrencies, which have been used for nefarious activities such as money laundering. The Fed has been researching the creation of a CBDC for years.

U.S. lawmakers have also introduced bills that would enable the US Treasury Department to create a digital dollar. The electronic dollar allows people to make payments with mobile phone tokens or cards instead of cash.

In November, the New York Federal Reserve Bank started developing a wholesale CDBC prototype. called Project cedar, the CBDC program has developed a blockchain-based framework that is expected to become a pilot in a multinational payment or settlement system. The project, now in phase 2, is a joint experiment with the Monetary Authority of Singapore to investigate issues surrounding the interoperability of the distributed ledger.

Since CBDCs are issued by central banks, they will primarily focus on domestic payments initially, with cross-border payments as systems are set up and links are made between CBDCs used by individual countries. Critical to CBDC’s success, however, is cross-border adoption and acceptance by retailers.

CBDCs will also need a complex regulatory framework, including privacy, consumer protection and anti-money laundering standards, to be made more robust before the technology is adopted, according to the Atlantic Council. A new payment system could also jeopardize the national security objectives of the country using it.

“For example, they may limit the United States’ ability to track cross-border flows and impose sanctions,” the group said. “In the long run, the absence of US leadership and standard-setting could have geopolitical consequences, especially if China and other countries maintain their lead in developing CBDCs first.”

Steinberg agreed, saying that a fully distributed system carries risks, “both that wallets are picked electronically, and that the validity of transactions (consensus) can be cheated. A well-designed system can be quite secure today and future-proofed. one would lead to widespread theft and fraud,” he said.

According to Juniper’s research, there is still a lack of commercial product development around CBDCs to date, with few well-defined platforms for central banks to tap into – a major limiting factor for the current market.

“While cross-border payments currently involve high fees and slow transaction speeds, this area is not the focus of CBDC development,” said Nick Maynard, Juniper’s chief research officer. “As CBDC adoption will be very country-specific, it will be the job of cross-border payment networks to link systems together so that the wider payment industry can benefit from CBDCs.”

For success, any CBDC platform would need a full end-to-end financial network, including wholesale capabilities, digital wallet and merchant adoption, Juniper said.

According to Gartner Research, one of the challenges for central banks is figuring out how to enable a CBDC that adds value over and above existing payment systems. The success of CBDCs also depends on “programmability” enabled by smart contracts, Gartner argued in a January report.

“To further justify investments in CBDCs, developers are experimenting with injecting programmability into CBDC-enabled payment value chains,” according to Gartner. “That’s why banking CIOs must prepare for this transformation,”

As part of ongoing pilots of the digital Yuan, or e-CNY, for example, the Bank of China Chengdu is using smart contracts to manage deposits for extracurricular school activities, such as field trips to museums. Using the e-CNY CBDC reduces reliance on third parties to handle a refund if a class is canceled or a student is unable to attend, according to Gartner.

Countries like Russia and China see how payments that rely on U.S. infrastructure and currency could be affected by sanctions and are working to develop alternatives, Steinberg said.

“The one to watch is China,” Steinberg said, referring to the mBridge project. “Domestically, they need to prevent all electronic payments from moving to tech companies, and they see no doubt benefits in increased consumer scrutiny. Internationally, they’ve been testing cross-border payments and settlement with central banks in places like Thailand and the UAE. That’s the current concern.”