CBDCs make tangible progress – The Economic Times

Clipped from: https://economictimes.indiatimes.com/opinion/et-editorial/cbdcs-make-tangible-progress/articleshow/86622255.cmsSynopsis

Suppose there were a non-dollar digital currency that maintains a relatively stable value and can be used to settle payments that do not have the US as a counterparty, US ability to weaponise the dollar would weaken. JPMorgan already has one, which it uses for its global clients. Why should BIS not come out with a stablecoin that runs on a distributed ledger?

Four central banks, of Hong Kong, China, Thailand and the UAE, have, with the help of the Bank for International Settlements (BIS) Innovation Hub, concluded a successful experiment of settling international payments using a distributed ledger for their respective digital currencies. The payments took seconds, instead of days, as happens with the traditional SWIFT network of cross-border flow of funds. The cost was about half of that for conventional payments. This is a major step forward in friction-free international payments. India must join these efforts.

India and Singapore made their instant payment systems, UPI and PayNow, interoperable. And that does not call for central bank digital currencies (CBDCs). Why should we look beyond this arrangement to a CBDC-based system? There are two reasons. The blockchain technology that underpins the distributed ledger is also capable of producing smart contracts, that is, contracts that execute themselves, once payments are made. This functionality is not available with even the fastest conventional payment system. More important would be the part that a digital currency could play in serving as a means of settling international payments without using the dollar. Today, the bulk of global trade and financial flows take place in the US dollar. This gives the US government enormous extraterritorial power, such as to impose secondary sanctions that kick out of dollar networks any entity that deals with any counterparty from a sanctioned country. An urban cooperative bank might make do without being able to access New York’s dollar networks, but not a large commercial bank that wants to support a client doing global business.

Suppose there were a non-dollar digital currency that maintains a relatively stable value and can be used to settle payments that do not have the US as a counterparty, US ability to weaponise the dollar would weaken. JPMorgan already has one, which it uses for its global clients. Why should BIS not come out with a stablecoin that runs on a distributed ledger?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s