More than half of the central banks named in the survey are in the development or pilot phase, and about two-thirds of these central banks say they would issue a retail CBDC in the short to medium term. Many central banks are currently developing CBDC ecosystems with the coordination of the private sector and existing payment methods.
Central banks want the CBDC
Basically, there are two models of CBDCs including a tier where the Central Bank not only operates the interbank CBDC system but also provides direct CBDC wallet and account services to the public. At two levels, the Central Bank and private sector intermediaries work together, with 70% of the Central Bank developing the two-tier model, as this model ensures efficiency in the provision of services such as customer access, process identification, anti-money laundering, anti-money laundering. – financing of terrorism (AML/CFT) and the management of retail payments to the private sector.
The motivation for the development of CBDCs is also different between the two groups of countries. Developed countries are interested in the CBDC with the aim of increasing the efficiency and security of national payments and financial stability. Moreover, with the emergence of stablecoins and other cryptocurrencies, this is also a reason for the development of CBDCs in these countries. For developing countries, retail CBDC is driven by domestic payment efficiency, payment security, financial stability, and cross-border payments. Serving inclusive monetary and fiscal policy is also an important reason for the development of CBDCs in developing countries.
According to PWC rankings, Nigeria is leading the way with the issuance of eNaira, the first retail CBDC in Africa. With the issuance of the sand dollar, the Bahamas was the first country to issue a CBDC. China was the first major economy to pilot a CBDC with a digital yuan in 2020, and as of March 2022, the pilot program has been running in 12 cities, including Beijing and Shanghai.
For wholesale CBDC, the main project in development is mBrige, – a combination of Hong Kong and Thailand. This project enables cross-border payments based on DLT technology. Singapore also ranks high with two new CBDC projects for cross-border payments and cross-currency payments.
Implications for Vietnam
According to the law, the State Bank of Vietnam performs the function of public management of currency, banking and foreign exchange. It also performs the functions of the Central Bank in terms of issuing money to credit institutions (CIs) and providing monetary services to the government. The law also regulates the activities of the State Bank of Vietnam to stabilize the value of money; ensure the security of banking operations; the system of credit institutions; the security and efficiency of the national payment system; and contributes to the socio-economic development of the country.
As part of the functions of the State Bank of Vietnam, issues related to payments and payment systems will be the focus of discussions regarding the objectives of digital currency development. Monetary policy management and financial stability issues also play an important role.
In addition to the interbank payment system, which has been operational since 2002, the Automated Clearing House (ACH) with many new features and utilities also came into operation in 2019 and has been continuously upgraded to serve the development of a non-cash payment policy. Therefore, with the current relatively modern payment system, whether it is necessary to have digital currency is an issue. Additionally, several issues need to be considered regarding the payment system for the issued digital currency.
First of all, it has to be seen whether it is possible to integrate this digital currency into the existing payment system or whether a new payment system has to be set up. Secondly, when setting up a new payment system, it must be seen whether this digital currency allows payments to be made via different payment methods and to be connected between them. In other words, if the payer and the receiver use different means of payment, it must be seen whether this system increases competition in the payment system or leads to redundancy of the payment system.
Regarding the management of monetary policies in general, the current tools have enabled the State Bank of Vietnam to manage its monetary policy in an optimal way. Cryptocurrencies can serve as additional monetary policy instruments requiring extensive discussion and research, with a focus on the advisability of issuing a digital currency and its potential impact on the transmission of monetary policy.
Although digital currency can help increase competition in the financial system, it can also have negative effects on the stability of the system, especially on the banking system, such as reducing the source of credit for banks. Therefore, this is also an important question to consider in terms of the risks and disadvantages of cryptocurrencies.
Source: SGGP/Saigon Investment