A panel discussing central bank digital currencies (CBDCs), which was a part of the World Economic Forum (WEF) Davos meetings, emphasized that it has high expectations for CBDCs as a component of the future of central bank money.

The panel, which was made up of central bankers including Amir Yaron, Governor of the Central Bank of Israel, Lesetja Kganyago, Governor of the South African Reserve Bank, and Julio Velarde, Governor of the Central Bank of Peru, noted several alleged benefits these new financial tools may offer but also emphasized the challenges in effectively putting them into practice.

According to Governor Velarde, CBDCs are emerging as a payment and credit solution that goes beyond banking integration. According to him, the role of central banks in developing these tools involves setting standards, bringing private banks into the fold, and enabling financial inclusion for those who are still outside the traditional banking system. About this, he stated: “We have learned the hard way that revolution has to come from the central banks. We don’t know the way in which CBDCs will be implemented… but we are looking closely at what will happen around the world.”

Governor Amir Yaron explained that central banks are currently interested in this because payments are now at the forefront of the financial markets. According to Yaron, CBDCs might serve as a bridge between the online world and private banking institutions. He stated: “We are seeing faster payments, smart contracts, e-money, crypto assets, and stablecoins, and CBDC is a public good that can be complementary but can also crowd out some of these things. CBDC could be the bridge between the new digital economy and the standard economy.”

CBDC research has been conducted in Israel. Project Icebreaker, which entails cross-border CBDC-based payments between Israel, Norway, and Sweden with the help of the Bank of International Settlements (BIS), includes their central bank.

For Governor Kganyago, closing the digital divide with regard to new forms of money, such as cryptocurrency, which is currently on the rise as a substitute for central bank-issued money, and modernizing payments systems is one of the main issues for more than 100 banks globally to be studying CBDCs.

In this regard, he is of the opinion that the environment is changing and that some central banks feel the need to adapt by providing these digital substitutes. For Kganyago, a national debate on the demand side is ultimately necessary because the main concerns relate to the general public’s choice regarding the use of CBDC. 

He explained that since CBDCs will need to adhere to the regulations of numerous jurisdictions from around the world, the implementation of CBDCs for national and cross-border payments will present more regulatory challenges than technological ones.