“We have decided to stop experimenting. And now we are moving to the stage of commercialization, to give it a product shape,” Sopnendu Mohanty, Chief Financial Technology Officer at the Monetary Authority of Singapore, said at the ETMarkets Conclave on Cryptocurrencies.
Mohanty, an Indian, believes the major reason central banks are considering to issue digital currencies is that it has the potential to solve the problems with cross-border payments.
“Some countries are looking at digital currency as a defensive measure. Some are looking to preserve monetary sovereignty, and others are looking to leapfrog constraints that they have so that they can build a modern payment system faster and a cheaper way,” Mohanty said.
He said Cambodia is currently the only country in the world which has used DLT (distributed ledger technology or blockchain) to construct a national payment structure, which is called Bakong. The system, in its use is similar to UPI, can be used to send and receive money using any app or bank account.
“Cambodia did not have existing rails for a fast payment system and building it was expensive for them. Hence, they built a new construct based on blockchain,” he said.
For many years, central banks have struggled when it comes to cross-border payments. Singapore is trying cross-border transfers just by connecting domestic payment networks of countries, which will bring down the time for such transfers to minutes from days as of now. But that still has some problems.
“Behind this cross-border payment, there are a lot of traditional processes still running. AML-KYC screenings, multi-ledger settlements – there is a whole set of processes still running. While your time has reduced, the cost has not gone away. What we are trying to examine is can CBDC solve the back-end cost structure (even for small value),” Mohanty said.
The Reserve Bank of India (RBI) has in principle been opposed to cryptocurrencies, but is said to be weighing a digital currency with sovereign guarantee. Such a currency will not have trust issues associated with the private tokens.
Apart from cross-border payments, central bank digital currencies also have the potential to simplify government grant disbursal, for example subsidies or MNREGA wages, Mohanty said.
For example, if there is an RBI-issued currency, based on the rupee, that can be directly transferred to wallets of the beneficiary without the need to have a bank account. The government can directly issue the subsidy to the beneficiary wallet (preferably a mobile app created by RBI or the government, which could be connected to Aadhar), bringing down the back-end costs associated with transferring a small sum of money to a large number of recipients.
Mohanty also cited the example of China, which is already experimenting with a renminbi-based digital currency to construct an ecosystem outside Alipay and WeChat, which dominate the payment industry in the country today. They are also looking at the opportunity for cross-border payment by tourists using e-renminbi.
Experts speaking at the conclave said such a digital currency would not need new rails of transfer or can be integrated to the existing setup for seamless use.
