The head of the Innovation Hub at the Bank for International Settlements has said that wholesale central bank digital currencies (CBDCs) will most likely be powered by blockchain.
Speaking at the OECD Global Blockchain Policy Forum, Benoît Cœuré said “when it comes to wholesale CBDCs it’s very likely that blockchains will be involved.”
According to Cœuré, central banks currently have a choice between blockchain, or token based CBDCs, and account-based currencies. However, he noted that most banks that would be the targets of a wholesale CBDC already hold central bank accounts. Further, he suggests the utility of tokens mean that is the preferred option for wholesale.
Cœuré said that as more financial market infrastructure become reliant on blockchain, the impetus to deploy wholesale CBDCs would become more pressing. Tokenization of CBDCs makes settlements far quicker, easier and cost-effective, with a number of central banks around the world already exploring this option.
Without a central bank-backed digital currency, the alternative is to integrate blockchain with existing payments infrastructure, though that route provides its own challenges, and may not be robust enough for longer-term application.
The comments from Benoît Cœuré distinguish between wholesale CBDCs and retail CBDCs, with the former presenting its own challenges. Fragmentation between account money and tokenized money is one of the main issues to be overcome, which could pose foreseeable difficulties for implementing monetary policy.
Blockchain systems could provide a solution to the problem via distributed ledger technology, and solves several of the practical problems posed by wholesale CBDCs.
Cœuré said that in general terms, central bank money remained an important public good, encouraging innovation through supporting private sector activity.
“We should let the private sector innovate. And for that, we need diversity and we need an ecosystem. But we want central bank money to be at the heart of that.”