The year 2022 is already shaping up to be decisive for the CBDCs with China preparing to deploy its digital currency beyond its territory. Several countries embarked on the race for CBDCs are also expected to move to a much more advanced stage of their pilot programs. However, a new report points to some potential risks that banking service providers and central banks need to consider as early as possible. Details below.
Financial and regulatory risks
Entitled Blue Print for CBDC in Post-Trade-Settlement, the latest report from the International Securities Services Association (ISSA) presents the main threats to the interoperability of CBDCs. These are in particular classified into two categories, namely financial risks and regulatory risks. In the first case, the report mentions as problems the fragmentation of liquidity, the multiple levels of counterparty risk and difficulties in settling a net amount.
Regulatory concerns relate to the choice and application of laws who will oversee transactions between fiat and CBDC internationally. “The costs and risks associated with a lack of timely interoperability between tokenized and non-tokenized systems also need to be carefully considered, especially when transactions move through models.on-ramp / off-ramp”Between fiat and CBDC for example», Specifies the report.
Management of users’ private data
In addition to the previous risks, there are many concerns around the management of users’ private data. Former NSA analyst Edward Snowden had previously raised this major issue by calling CBDCs a danger. He considers in particular that governments could use it to monitor and control the population. In addition to central banks, service providers associated with CBDCs should also face certain difficulties.
In this regard, the European Central Bank has already expressed its concern about foreign intermediaries that process European payments. To this end, a survey was recently carried out in Germany among the few supporters of the CBDC. The majority of those interviewed indicated that they also wanted avoid private players in the payments industry.
China’s early testing could be a problem
As the Winter Olympics approach, China has reportedly implemented various means for visitors to use its CBDC. For its part, the authors of the ISSA report warn against the dangers of countries adopting the CBDC early.
“This is especially true at the start of adoption where there will be a challenge of “sunrise”: Ie some systems will adopt the new functionalities first while other systems in the same ecosystem / value chain will lag behind, hence the need for interoperabilityThe report says.
While it is true that the development of CBDCs is first and foremost a question of sovereignty, States should quickly consult together to anticipate the problems linked to their interoperability. This concern should be their priority given how CBDCs can change the world.
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Luc Jose Adjinacou
Far from having dampened my enthusiasm, an unsuccessful investment in 2017 in some crypto only increased my enthusiasm. I therefore resolved to study and understand blockchain and its many uses and to relay information relating to this ecosystem with my pen.