Current Models of Central Bank Digital Currencies (CBDCs) Not Suited for Everyday Transactions, Says Research Head
The head of research at crypto brokerage Copper, Fadi Aboualfa, has expressed skepticism about the current models of Central Bank Digital Currencies (CBDCs) and their viability as replacements for physical cash in everyday transactions. Despite recent proposals by entities like Hong Kong and the Bank of International Settlements (BIS), Aboualfa believes that existing CBDC models have significant flaws and issuing a CBDC would be a complex undertaking for central banks.
Challenges and Concerns Surrounding CBDC Models
Aboualfa raises several concerns about the practicality and effectiveness of current CBDC models. One crucial aspect that he believes has not received enough attention is CBDC interoperability. The current designs suggest the presence of multiple blockchains with intermediaries governing the flow. To achieve a global design and structure of a CBDC, Aboualfa suggests prioritizing integration rather than vendor lock-in, taking into account the distinct considerations and requirements of each central bank.
Additionally, Aboualfa emphasizes the challenges involved in implementing a CBDC, including logistical, technological, and regulatory hurdles that must be overcome. Technical flaws in the design of CBDCs also raise doubts about their ability to function as true replacements for physical cash in real-world scenarios.
Challenges of Issuing CBDCs
Aboualfa discusses the challenges of issuing CBDCs directly from central banks or through commercial banks. He highlights the need for central banks to acquire further expertise and infrastructure to establish a fully automated, decentralized equivalent to cash. Establishing a retail wallet infrastructure is crucial for each central bank’s isolated approach.
Regarding CBDCs issued by commercial banks, Aboualfa expresses concerns about potential consumer confidence issues if the tokens bear specific branding associated with a particular commercial bank. He warns that if a bank involved in issuing a CBDC faces a scandal or financial distress, it could create chaos in decentralized open markets. Establishing trading pairs and maintaining a peg between CBDC brands issued by commercial banks further complicates the process.
The Need for Further Research and Development
Aboualfa emphasizes the need for further research and development in CBDCs. He argues that central banks currently lack the required expertise and infrastructure for automated decentralization. Addressing the technical, regulatory, and interoperability challenges associated with the design and implementation of CBDCs is essential.
Summary and Future Implications
Overall, Copper’s research head raises valid concerns about the current models of CBDCs and their suitability for everyday transactions. The flaws in the designs and the practical challenges involved in implementing CBDCs must be addressed before they can effectively replace physical cash. Further research and development, along with collaboration between central banks and industry experts, is needed to overcome these obstacles and create viable CBDC solutions for the future.