6 Minutes Read by (Reuters) – LONDON (Reuters) – Commercial lenders are stepping up efforts to influence policy and technical plans as central banks experiment with digital currencies, according to more than a half-dozen industry executives and public documents. The Bank of England and the financial area of the City of London in London, Britain, on November 5, 2020. John Sibley/Reuters Monetary authorities from Washington to Beijing are considering establishing their own central bank digital currencies, or CBDCs, fearful that the rise of cryptocurrencies could erode their grip on the economy. Although a widely accepted digital dollar, euro, or yuan may be years away, such projects have the potential to disrupt the financial services industry, spurring institutions to action. “CBDCs start a debate on the basic nature of money that might have a major impact in practically everything we do, from securities processing to settlement,” said Swen Werner, State Street’s managing director for digital assets. CBDCs may see central banks and tech players compete in retail banking, while incumbents have possibilities to cut costs and improve services, depending on the design. Unlike cryptocurrencies, which are primarily operated by private actors, and electronic money, which is mostly created by commercial banks and utilized in billions of transactions every day, some CBDCs would be issued and backed by central banks. State Street, Goldman Sachs Group Inc, JPMorgan Chase & Co, Societe Generale, and HSBC are among the financial institutions interested in shaping and benefiting from CBDC technology. According to CEOs and public documents, lenders are sponsoring research, collaborating with tech companies and central banks on test programs, and increasing lobbying. They are also working on the issue through trade organizations such as the European Banking Federation (EBF) and the United States Chamber of Commerce, as well as private discussions with legislators. The EBF said in an email that the consequences of CBDCs are “concerning,” and that “given the potentially far-reaching influence of the digital euro, the EBF is keen to see a more organized conversation with the European Central Bank and European banks to work closely together on this project.” OPPORTUNITIES FOR WHOLESALE CBDCs can be purchased in either wholesale or retail form. Using distributed ledger technology, wholesale digital coins might be used to make payments between banks or other businesses having central bank accounts, making the procedure simpler and cheaper. HSBC and Standard Chartered are already collaborating with central banks in Hong Kong, Thailand, and the United Arab Emirates to use CBDCs for wholesale cross-border payments, which are now a time-consuming process involving numerous parties. In Singapore, Citi and JPMorgan are among the banks engaging in a similar endeavor. In the end, such programs may enable businesses to make secure real-time payments across jurisdictions. CBDCs, according to HSBC CEO Noel Quinn, may simplify global payments, reduce costs, and increase transparency. He added HSBC is in talks with governments such as the United Kingdom, China, and Canada regarding their digital cash plans. CBDCs might help speed up the settlement of securities trades, which can take days when many parties are involved, according to executives. A CBDC could be programmed with instructions to deliver the security as soon as the digital money is received. Fnality, a London-based startup sponsored by 15 financial corporations, is waiting for regulatory permission for a blockchain-based system that would simplify financial institution settlement. Goldman Sachs also said last month that it had closed a repo trade on JPMorgan’s private blockchain network, which was a first. WORRIES IN THE RETAIL INDUSTRY ncumbents, on the other hand, are concerned about a potential retail CBDC, in which digital coins are distributed directly to customers. Millions of people who have been shut out of the banking system could receive, spend, and save money using a digital wallet, according to proponents. Retail CBDCs have the potential to improve government services while also reducing fraud. Pandemic help, for example, might have been granted more quickly and at a lower cost as a retail CBDC that could only be used for approved expenses. However, such a model risks depleting banks’ deposit bases, a vital source of low-cost funding, as well as the fees associated with them. Last month, Morgan Stanley predicted that a digital euro might absorb 8% of euro zone banks’ customer deposits. The Bank of England has also warned that a significant shift to digital currencies, such as CBDCs, will increase funding costs and interest rates charged by banks. “If central banks compete on the amount of money consumers may hold, that could imply fewer deposits with commercial banks,” said Isabelle Martz, Societe Generale’s vice director of retail payments. “It could have an influence on the economy’s ability to finance.” The EBF has recommended central banks to avoid using CBDCs as savings and investment tools, as they would compete with deposits. The US Chamber of Commerce has also issued a warning against stifling private-sector innovation. However, that scenario is considered extreme, and central bankers have stated that they want private banks to continue to play a role. “People know that the private sector’s involvement is critical,” said Mathew McDermott, Goldman Sachs’ global head of digital assets. The categories of private enterprises eligible to issue retail CBDCs could potentially be expanded by policymakers, increasing competition. China, for example, has permitted Ant Group, a fintech company, to participate in its CBDC trial. Non-bank entrants should be subjected to the same regulatory scrutiny as banks, according to certain industry groups, and the private sector should have more say in policy talks. For example, the US Chamber of Commerce is urging the White House to form a taskforce comprised of government, private sector, and academics to help design the US CBDC policy. “We’re in various meetings to help put some ideas on the table and to lobby with Members of Congress and regulatory agencies to get them to come together and come up with the correct policies,” said Tom Quaadman, a spokesman for the Chamber. Pete Schroeder contributed additional reporting from Washington, while Michelle Price and Catherine Evans edited the piece./n
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