The head of the Innovation Hub at the Bank for International Settlements (BIS) has called on central banks to step up their central bank digital currency (CBDC) efforts to compete with the quickly evolving stablecoins and decentralized finance. Central banks across countries are actively researching digital currencies, and many have made decent progress.
Central banks are trying to keep up with the change.
In his speech at the Eurofi Financial Forum, BIS’s Innovation Hub’s head Benoît Cœuré acknowledged that the world of finance is shifting drastically, with mobile and contactless payments becoming part of our daily lives due to the pandemic. Globally, central banks are striving to keep up, and CBDCs are their best shot at staying ahead of the times, the banker believes. Benoît believes that central bank-issued money is superior due to factors such as its safety, finality, liquidity, and integrity. However, even with their advantages, CBDCs face a litany of competition from big techs (such as the embattled Facebook’s Diem), stablecoin issuers, and DeFi, the banker believes.
Benoît believes that urgency is key if central banks are going to compete with rivals.
The French economist, who previously served on the board of the European Central Bank, believes all these new-age innovations face their own bottlenecks. “Stablecoins may develop as closed ecosystems or ‘walled gardens,’ creating fragmentation. With DeFi protocols, any concerns about the assets underlying stablecoins could see contagion spread through a system. And the growing footprint of big techs in finance raises market power and privacy issues,” the chief pointed out. As such, CBDCs “will be part of the answer,” he told the audience. Benoît believes that urgency is key if central banks are going to compete with their upcoming rivals.