In examining the emergence of central bank digital currencies (CBDCs) and their use cases — and the infrastructure that underpins it all — a twist on that old baseball movie comes to mind.
If you build it, will they come?
In the U.K. and the U.S., central banks and various agencies are examining how, when and where — and even whether — to tackle CBDCs. In Britain’s case, we’ve just gotten a timeframe for a launch, if it were to happen, of a digital pound. Don’t hold your breath, as the U.K.-centric CBDC would not be around until the second half of this decade.
It seems that in at least one case, the CBDC experiment may be a case of hedging bets. As reported by The Straits Times, Singapore is already on its journey toward building out the tech infrastructure to launch a CBDC. But according to commentary from central bankers, Singapore may be lukewarm on the prospect of retail CBDCs at present.
Monetary Authority of Singapore (MAS) Managing Director Ravi Menon said at an online conference that, should they be issued, “a digital Singapore dollar issued by MAS will be safe, widely accepted and bear the authority of the state.”
But he also noted that a retail CBDC would be risky during times of economic stress. And even in normal times, “if people held a significant portion of their deposits in the form of digital Singapore dollars with MAS, it would considerably reduce our banks’ ability to make loans.”
There’s no real urgency to issue the retail CBDCs, though wholesale CBDCs could benefit enterprises, he continued, observing that “the financial inclusion benefits of a digital Singapore dollar are not compelling. A high proportion of Singaporeans have bank accounts, and electronic payments in Singapore are pervasive, highly efficient and competitive.”
The implication is that the rails are already in place well enough so that there’s no need to replace the existing financial services ecosystem or upset the existing order. Instead, by building the infrastructure, the MAS is introducing payment options that rest in parallel to other digital options.
That might give way, given the fragmentation that seems to be a hallmark of other central banks’ CBDC efforts. Consider the fact that in China, digital yuan are issued and stored in digital wallets. Consumers who opt to transact with digital yuan, but also with other online payment options, would conceivably have to carry several wallets housed within their mobile devices – toggling through different payment options depending on the use case.
No clear-cut path lies ahead, it seems, for CBDCs – the approaches will be varied, depending on where you look.