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Five signs that central banks could make retail banks obsolete
by Edward de Mas Latrie

Central Bank Digital Currency is set to change the world of commercial banking. Currently, central banks do two things well: they produce bank notes and coins and they form reserve accounts for commercial banks.

Our white paper Death of the Retail Bank? examines the existential threat Central Bank Digital Currencies pose to retail banks. There are signs that we'll see widespread CBDCs soon.

Central Bank Digital Currency is a new form of money, issued digitally by a central bank, which would allow the general public to have an account with them.

In this new world, where would retail banks fit in? Here, we look at five signs that CBDC is not a distant concept – it’s much closer than most people think.

1. IMF: “CBDC is coming alive”

In April 2019, Christine Lagarde, managing director of the International Monetary Fund, branded the global economy as in a “fragile state” and said that “central bank digital currency is coming alive”, citing the Eastern Caribbean Central Bank and the Central Bank of the Bahamas that have announced advanced plans to run pilots.

“They have a 12-month experimental period that they want to go through before they launch for good,” she said.

2. The Bank of Thailand (BoT) has developed its first digital currency prototype

One of the BoT’s collaborators, Wipro, confirmed on 7 May that its team had developed a new blockchain-based system to enable domestic funds to be transferred through a wholesale CBDC. The work forms part of Project Inthanon, which is led by the BoT in partnership with eight commercial banks.

3. Russia has entered the CBDC ring

The Central Bank of Russia has published an analysis of the potential benefits and drawbacks of CBDC. In it, the bank identified reduced transaction costs as a positive but conceded that its lack of anonymity would be unpopular among people who prioritise their privacy.

4. "There is a greater than 50% chance of Swedish digital currency within 10 years”

Swedish central bank deputy governor Cecilia Skingsley made this announcement at the IMF Spring Meetings this year. The value of bank notes in Sweden accounts for just 1% of GDP in comparison with 10% in the Eurozone.

5. Singapore and Canada have just completed their first digital currency transaction

At the beginning of May, the Monetary Authority of Singapore and Bank of Canada completed their first blockchain-based transaction with the help of internal digital currencies. “Our exploratory journey into the use of [digital currency] to try to reduce some of the costs and improve traceability of these payments has yielded many lessons,” said Scott Hendry, Bank of Canada senior special director.

While 75% of the world’s central banks have conducted research into the production of CBDC, currently only a few have published plans and pilots. But these five examples prove that we could soon live in a world with markets that operate in this way and, if they are successful, the technology will already exist for others to quickly follow suit. This will radically change how retail banks need to operate, but there can still be a need for them if they act now.

Read more in our white paper Death of the Retail Bank?

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