CRYPTO & BLOCKCHAIN: CBDCs Opinion is split on whether cryptocurrencies are the ultimate root of all evil or a force for good. Those who’ve chased the market and cashed out at the top of cryptos’ many rollercoaster highs made a fortune. Recent major crashes in the values of decentralised and unregulated tokens like Terra’s Luna and its associated US dollar-pegged stable coin, have ended in misery for investors who suffered heavy, and possibly unrecoverable, losses. But, beyond the backlash headlines, there is support, both at government and corporate level, for investing in other types of digital currency that is similarly developed on blockchain technology. Indeed, nine nations – The Bahamas, Nigeria and seven countries in the Eastern Caribbean Union – have already created a central bank digital currency (CBDC). And almost 80 more countries are either actively pursuing one, or considering doing so – with India, Russia, China, Sweden and Jamaica likely to be among the next issuers of CBDCs. In March 2022, US President Joe Biden signed an executive order to promote responsible innovation in digital assets, while the Bank of England is now starting a consultation process about creating a CBDC to run alongside cash and bank deposits. But it is not just governments that are heavily involved in research.
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Paul Wong from Stellar believes digital currencies and their supporting technology are about to open up a ‘financial superhighway’ that will prove to be a game changer for the payments industry and finance in general A blockchain ecosystem with some 1,500 different platforms is continually evolving, where established decentralised currencies like Ethereum and Bitcoin, the Hyperledger collaboration hosted by the Linux Foundation to advance cross-industry blockchain technologies, and the Corda distributed ledger technology (DLT) platform rub shoulders. There is also the Stellar Development Foundation, a US-based non-profit organisation on a mission to create a more open and inclusive global financial system, which has a blockchain network processing more than five million transactions a day. Paul Wong, Stellar’s director of product for CBDCs and institutions, whose background includes running the Federal Reserve’s digital currency experimentation programme, is in no doubt of the game-changing potential of the underlying technology.
“I think what we’re really doing today is building a new financial superhighway, and that is incredibly exciting,” Wong explains. “From my perspective, we’re currently operating on a two-lane highway that was built in the 80s or 90s, but has been repaved several times over. In some cases, we’ve been able to expand that highway to four lanes, we’ve built new highways to handle different asset classes, but otherwise, fundamentally, not much has changed over the last few decades. “Today, our financial highway is somewhat siloed. Payments are on one highway, security is on another, and commodity is on yet another. And that structure exists for a number of reasons, including, for example technology, technological limitations, regulatory constraints, legacy systems, the list goes on.” But blockchain and other DLTs, he believes, have the power to overcome all that. “Innovation is really challenging the current arrangement. The blockchain community today is working to build multiple financial superhighways, with eight-to-10 lanes, accommodating a number of different users,” he adds. “These highways are able to accommodate more than just freighters and cars, for example; they will hopefully allow for walkers, bikers, autonomous vehicles, whatever you can think of.
Issue 12 | ThePaytechMagazine
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