Central banks look to two-tier retail CBDC model amid disruption fears
According to a recent report by an international risk assessment firm Moody’s.
“Based on the existing and proposed pilot programs, the development of the CBDC is done in conjunction with the existing financial market infrastructure, the two-tier model,” the report said, adding:
“Under this approach, banks and other financial intermediaries would retain their customer contact role and play a role in disseminating CBDCs. ”
Despite this cautious approach, CBDCs are seen as a potentially very disruptive instrument for global finance.
The risks of disintermediation and loss of fees will increase for banks around the world as they adjust to CBDCs, but the level of disruption will depend on various key design and policy choices, Moody’s said.
“Central banks need to focus on the precise shape of their retail CBDC and whether it operates on a centralized architecture. They should also consider holding limits, whether CBDCs bear interest and the cost of using existing payment rails, ”according to the report.
If CBDCs were to become highly integrated and accessible to market players, especially large technology companies, through application software interface (API) technology, they could also trigger greater disruption to existing financial institutions across the country. world, as the analysis indicates.
The programmability and potential use of digital currencies for cross-border payments is also likely to increase the global adoption of CBDCs.
“Although not intended to compete directly with bank deposits, CBDCs would be an attractive risk-free alternative, increasing bank financing costs, especially since CBDCs held directly by individuals would not be available to them. fractional reserve loans and whether holding limits are high, ”the report states.
Moody’s also recognizes that CBDCs could pave the way for widespread use of risk-free instant payments, and they may also increase the share of payments processed through a possibly cheaper central bank-operated payment infrastructure. As a result, current commission income to banks and other financial institutions from payment processing would decrease, further reducing the profitability of traditional finance players.
In addition, a recent article by Patrick McConnell, visiting scholar at Macquarie University Center for Applied Finance (MAFC) in Sydney, demonstrates a cautious approach to CBDCs, similar to that shown by many banks.
“There have been many claims… that adding programmability to a CBDC could bring a plethora of economic benefits, including automated payments, such as payment for the use of toll roads; automated control of money laundering; automated tax collection; and distributing support to consumers in an emergency, ”writes McConnell.
That said, many of the claimed benefits already exist or could be deployed in existing systems.
“More specifically, these benefits could be achieved by using Instant Payments Systems (IPS), such as the FedNow system which is currently implemented by the US Federal Reserve, says the author.
In the meantime, another sign of growing momentum for the CBDCs, the Bank for International Settlements (BIS) recently unveiled plans to scale up its pilot CBDC program as part of a cross-border initiative designed to test interbank settlements using multiple CBDCs.
The initiative is the result of the BIS Innovation Hub which will cooperate with the four central banks of the Asia-Oceania region: the Reserve Bank of Australia (RBA), Bank Negara Malaysia, the Singapore Monetary Authority, and the South African Reserve Bank.
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