Three monetary and crypto currency experts talk about the challenges and possibility of central bank on issuing digital currencies at the Massachusetts Institute of Technology (MIT) Bitcoin Expo on March 7, 2020.
Conversationalist admit that distributed ledger technology (DLT) could enhance the global monetary system, but the challenges still remain in terms of privacy, interoperability, and scalability of blockchains.
The central bank should not rush to use the DLT; IMF Office
An economist of the International Monetary Fund (IMF), Sonja Davidovic, remind central banks not to hurry to apply blockchain systems without examining it. She added:
“What we’ve seen a lot is that there’s a hype out there and people are quickly jumping to choosing that technology just because it’s popular.”
“That certainly happened with blockchain. The result of that is that we’ve seen central banks that are directly engaging with it without going through the proper process of testing the technology in a proof of concept, selecting vendors through an open bidding process, and having a request for proposals.”
While various systems are available at the central bank, Davidovic said that none of them show strong privacy and interoperability. IMF added that central banks face greater risks in implementing this technology – as they typically outsource development to third-party companies.
Can DLT hold up multi-trillion transaction amount?
A research scientist at the MIT Digital Currency Initiative Robleh Ali, forecasts that the central bank’s digital currency in the end take on disparate “hybrid” forms.
“You’ll likely end up with a hybrid in the end. I don’t think every central bank would choose the same system. How they interact with each other will be key, so you can sort them into a single system.”
Bob Bench, director of fintech research, stressed that cryptocurrencies like Bitcoin does not meet the needs of the central bank.
“BTC is very interesting because it’s mostly just transactional values. But if you’re trying to build a retail central bank currency – like China, for example, there’s 40 trillion in volume last year generated through WeChat alone – you need something that over and over and over again, can move value and do it quickly without breaking.”
Acknowledging that the DLT “might work,” federal reserve officials asserted the central bank to consider the risk of “putting their full trust and the government’s currency trust” into the DLT.
Alipay and WeChat consist of digital central bank reserves
In June 2019, Alipay and WeChat have included worldwide digital central bank reserves as Bank of China’s move to fund both platforms.
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