A digital euro could be the “Holy Grail” of cross-border payments, according to a recent report by the European Central Bank.
A European central bank digital currency (CBDC) would present a solution that is “immediate, cheap, universal in terms of reach, and settled in a secure settlement medium,” the ECB said.
While saying the “interlinking of domestic payment systems and the future interoperability of CBDCs are the most promising avenues,” the report pointed to forex conversions, monetary sovereignty and easy instant payments as benefits.
See also: ECB: CBDC Could Be ‘Holy Grail’ for Cross-Border Payments
It also looked at a number of alternatives, including correspondent banking, FinTech solutions that have already delivered some successes, bitcoin and global stablecoins, and interlinking domestic payment systems through a cross-system and forex conversion layer before getting to CBDCs.
The latter two are the best choices, it said, ranking stablecoins and bitcoin as the worst.
No Plans at All …
The Bank of Thailand wants to be clear that it has no plans at this point to issue a CBDC, but it is moving its testing of a retail CBDC — the digital baht — to an actual pilot program with the public. The BOT has already run tests of its retail and wholesale CBDCs using private corporations.
“The BOT deems it necessary to extend the scope of retail CBDC development to a pilot phase in which real-life application of Retail CBDC will be conducted in cooperation with the private sector within a limited scale,” it said in a release on Aug. 5.
The central bank’s deputy governor, Vachira Arromdee, noted that central banks around the world are looking into the potential of a retail CBDC as the “foundation of the future financial system.”
That limited scale is about 10,000 people, the bank said. Testing will be separated into a foundation track focused on the design’s technology and safety, and an innovation track focused on using the digital baht’s programmability to discover more use cases, running from late 2022 through mid-2023.
Read more: Thailand Moves CBDC Study to Pilot Stage Without Plans for Issuance
Smart Contract Concerns
The Bank of Israel’s research into a CBDC has led it to become increasingly concerned that the ability to write smart contracts has the potential to allow “malicious” acts intended to destroy the tokens.
“An important question,” the report said, “is who writes the smart contract. Allowing anyone who wanted to, to write the smart contract on the blockchain may pose a significant risk to the entire system.”
Poorly-written smart contracts have already led to millions of dollars being lost when unintended consequences lead to situations in which the contract will never pay out. Unless specifically designed to do so, smart contracts can’t be changed or canceled once written until the specific circumstances are met.
Nepal Climbing CBDC Pinnacle
The central bank of Nepal intends to send a bill to parliament asking for permission to issue a central bank digital currency, The Kathmandu Post reported Monday (Aug. 8).
The Nepal Rastra Bank’s action doesn’t necessarily mean it will actually issue a CBDC, however. And even if it does, it will likely wait to see how its much larger and much more eager neighbors China and India do with the CBDCs they intend to issue.
While the bank believes it needs legal authority to issue a CBDC while it goes through testing, it still has “technical and economic issues to be considered,” said Revati Nepal, chief of the currency management department at the central bank. “We don’t want to take the unnecessary risk by rushing into introducing digital currency.”
A decision to go ahead would include creating a digital wallet and taking measures “to explore interoperability with the digital payment service providers.”
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