Massimo Buonomo, a former United Nations expert on blockchain and cryptocurrency, says consumers could gain big if countries globally adopt central bank digital currencies (CBDCs), because it would not only reduce costs and lower security breaches, but also eliminate the need for having a bank account.
“The processing of transactions in the future will not need credit cards, but only digital currency wallets,” Massimo, who acts as a board advisor and consultant for many international organisations, central banks and corporates, told the ETMarkets Cryptocurrency Conclave.
RBI Governor Shaktikanta Das on Wednesday said RBI is “very much in the game” and is getting ready to launch its own digital currency. “A central bank digital currency is work in progress. A RBI team is working on the technology side and procedural side, and how it will be launched and rolled out,” he said.
Buonomo said the only advantage of having a bank account in the current interest rate environment is that it enables digital payments with no remuneration.
“But there are many costs related to having a bank account, especially the ones that charge every single transaction. Fees are required to be paid for electronic transactions using credit cards,” he said. Besides, bank accounts have lower securities because of the risk of systems breach by hackers.
Buonomo, who has over 20 years of experience in international finance, said the use of digital currency can eliminate the need for having a bank account. “All you need is a digital wallet and make your bills using mobile phones, without using credit cards,” he said.
With the adoption of CBDC, consumers would not need to pay fees to credit card processing companies such as Visa, MasterCard and even SWIFT. “No fees will be required to paid to banks for money transfers or for holding a bank account,” he said.
On October 29, 2020, central banks namely the US Federal Reserve, Bank of England, Bank of Canada, Bank of Japan, the European Central Bank, Sveriges Riksbank, the Swiss National Bank and the BIS issued a report stating three main principles about CBDCs.
They said that a central bank should not compromise on monetary and financial stability in issuing a CBDC, which would need to coexist with and be complementary to the existing form of money. And, its features should promote innovation and efficiency.
Buonomo said banks are not in favour of the introduction of digital currencies, because they would suffer the most if the one-tier system is adopted in the longer term.
In a one-tier model, digital money would be transferred directly from the central bank via the social security system to a single person. That social security system would hold all the updated information of the persons. By this, digital payments would facilitate faster money transfer to people according to their updated information, Buonomo said.
Citing an instance, he said: “Because of Covid-19, the money transfer to be done in the US to the people who need them could be done directly with digital currency transfers via the security system.”
Buonomo said companies like Visa and MasterCard would be worst off because of the introduction of digital currency.
The possible adverse impact of CBDC on bank funding, including the potential for destabilisation, has been a concern for central banks.
He said there can also be a two-tier model digital money, which can be transferred by intermediaries, mostly banks, to a single person. This model is going to be adopted in China, and has also been proposed in the US and other countries.
Buonomo said one of the main features of China’s DCEP (Digital Currency Electronic Payment) is that it is exactly the same money, but in the digital form. It is to be transferred between users without an account and without a mobile linked to Internet network. “If a user’s mobile has a wallet, the digital currency can be transferred to another perform by placing two phones in physical contact i.e. via NFC. Introducing CBDC does not mean using only blockchain, as the current technology would not be able to handle volumes in China.
Meanwhile, Buonomo also talked about the Digital Dollar Project in the US being conducted in a partnership between Accenture and Digital Dollar Foundation, which is looking at a two-tier model, wherein a digital dollar will be a tokenised form of the greenback and the digital dollar will operate alongside the existing fiat currency and commercial bank money.
As suggested earlier, it would be distributed through the existing two-tier architecture of commercial banks and regulated intermediates. It would not impact the US Fed’s ability to effect monetary policy and control inflation.