With non-cash-transactions continuing to surge, the world's central banks are working fast to create digital versions of national currencies. In the latest news, Japan said it aims to launch a yen-based digital currency in 2022. This digital currency will be backed by bank deposits and use a common platform to speed up large-scale fund transfers and settlements among companies. So what is the digital currency hype all about and what implications does this have for the world of payments?
Japan is surprisingly one of the most cash-loving countries in the world. However, this is not keeping authorities from promoting cashless transactions to increase productivity.
In the midst of the pandemic, the way people around the world are approaching financial transactions has shifted. Rather than using cash, consumers use their mobile phones to tap and pay for just about everything, and governments around the world are playing part in this too.
Without a doubt, the momentum for CBDCs to become the norm for both wholesale and retail transactions is growing rapidly. And we believe that there is a lot to be learned from countries that have already rolled out their own digital currency.
In cities across China, the country’s central bank has begun rolling out an all-digita Bl version of its paper currency. One that can be accessed and accepted by merchants and consumers without an internet connection, available credit, or even a bank account. Already having conducted more than $5 billion in digital currency transactions, China has opened its digital currency up to foreigners.
Singapore and the Bahamas have successfully tested and launched national digital currencies.
The U.S., however, is having trouble even concluding its multi-year exploration into the possibility of a digital-dollar. In fact, an upcoming Federal Reserve paper on a potential U.S. digital currency won’t take a position on whether the central bank of the United States will, or even should, create one.
Last but not least, we can’t talk about digital currencies without addressing the EU’s own digital currency initiative. The European central bank warned recently that the process of issuing a digital euro might take up to five years with a potential rolling out planned for 2026. Nonetheless, the rollout can prove to be key in restricting illicit activities, such as large-scale money laundering.
However, at this stage at least, the framework around how CBDCs will actually opera te in the real financial world, especially as a cash replacement, is still in the early stages.
CBDCs will undoubtedly be the norm in the future.
Some experts have pointed out that the potential for rapid adoption of CBDCs could lead to large amounts of money being withdrawn from banks and other financial institutions, which rely on holding large cash reserves to fund business lending, mortgages and other types of finance.
Although blockchain technology does not necessarily have to be leveraged, there are already blockchains out there that enable the issuance of CBDCs. XinFin’s Enterprise-Ready Hybrid Blockchain; XDC Network is a great example of that, and given they are ISO20022 compliant, offer a great solution to Central Banks and FIs. Although XinFin’s core focus is on leveraging blockchain technology for Global Trade & Trade Finance, for which they have been selected by a Consortium of over 40 banks under the ITFA’s TFD Initiative, they can issue CBDCs in a matter of minutes.
What will digital currencies mean for the future of global economies?
As competition in the payments ecosystem is riling up between traditional and challenger banks, reshaping core systems and technologies of traditional banking is long overdue. When talking about future-proofing banks and financial services, the term Banking-as-a-service is starting to come up a lot. But what is banking as a service all about and how is it reshaping the industry?
Apple’s push to secure a spot in the payments ecosystem is still going strong. Or at least that’s the plan — executing on it may be … well, not that simple. This is because Apple has been making moves to build a network of merchants, among the most critical components of the payment value chain … with functionalities that are already out there in the market.
If you’ve even moderately kept an eye on any payments related news source, there’s no way you have not been bombarded with the Buy Now Pay Later craze in 2021. Almost all the widely known payment players in the field who could partake in the BNPL craze… actually did. We are quite sure that you have heard about the likes of; Klarna, Affirm, and Afterpay, but industry Giants such as Mastercard, Paypal, Visa, Square, Monzo, Revolut, Amazon, and even Walmart, are all offering BNPL options at checkout or are partnering with BNPL companies to offer this service to their customers. Even mighty Apple is climbing aboard.