Will 2022 Be the Year That Central Banks, Private Banks Collaborate on CBDCs?

As central banks examine digital currencies (CBDCs) and the private sector delves ever further into stablecoins, convergence and collaboration may be overarching themes of 2022 and beyond.

To that end, the Central Bank of Bahrain said this week that it completed a test of the JPM Coin for use in real-time payments.

Those payments were made by Aluminium Bahrain to counterparties in the U.S. The test, done with J.P. Morgan’s Onyx, used the permissioned JPM Coin system that function as both payment rail and deposit account ledger, transferring dollars held with J.P. Morgan.

The banks said in a statement that using the test, and the use of blockchain, address the “inefficiencies and pain points” which are hallmarks of cross-border transactions.

Read here: Bahrain Central Bank Completes JPM Coin System Test

The linkup between the central bank and JPM, a marquee name in banking, shows a bit of blurring of lines between public and private sector. One thing is notably clear, though — when it comes to cross-border corporate transactions, what we might term “traditional” cryptos (bitcoin and the like) are less likely to be embraced. If the options are on the table, that is.

Multinationals Embracing Digital Currencies 

The Bahrain activities announced this week dovetail with PYMNTS’ own findings in recent months, where 58% of multinational firms surveyed said they were using cryptocurrencies in some form.

Read also: Study: 58% of Multinational Firms Use Cryptocurrencies

Drilling down a bit into the data, we find that bitcoin is the most widely used crypto among these firms, embraced by 31% of them. Only a bit more than 10% of banks offer their corporate clients access to cryptos at all.

But as many as 55% of companies use blockchain, indicating that they place value on the “rails” or underlying infrastructure, that might be tied to a range of digital currencies.

For J.P. Morgan, the Bahrain news comes on the heels of an announcement last month that it has been working with Siemens on blockchain-based payments.

See: JPMorgan, Siemens and the Lure of Blockchain (Beyond Bitcoin, of Course)

That strategy was laid out in an interview between Karen Webster and Umar Farooq, CEO of J.P. Morgan’s Onyx.

Farooq told Webster that peer-to-peer (P2P) private blockchain networks can help streamline information flows tied to cross-border payments and remove the complexities tied to legacy systems.

Read: Onyx CEO On Blockchain, The JPM Coin And Simplifying Payments

And in a separate interview with Webster, Naveen Mallela, global head of coin systems at Onyx, noted that “my conversations with most of the banks have [concluded] that the industry needs shared platforms,” and added that “it’s not about bank-specific products, it’s not about bank-specific platforms. It’s about shared, industry-wide platforms, and decentralized networks.” In that interview, Mallela highlighted a 2021 BIS paper, which explored the opportunity for mCBDC (multi-central bank digital currency) networks to support real-time cross-border transactions via shared ledgers. The JPM Coin, said Mallela, takes a page from that mCBDC approach.

And while we contend that it might be far-fetched to think that central banks would simply co-opt a bank’s stablecoin, there is room for cooperation (and for the central banks to take cues from the private sector’s own technological advances), for several “stablecoin options” to be on hand to bring corporates more fully into the digital age on the global stage.