CBDCs now have a great attraction for central bankers

elites are rarely welcome. When financers and politicians recently gathered in Davos for the meeting of the World Economic Forum, crypto damage was in the air.

At the beginning of this year, when Krypto was booming, numerous digital asset companies booked areas on the Davos Promenade to promote their power and brands. But shortly before the Terra and Luna stable coins collapsed, and the price of tokens like Bitcoin crashed.

CUE establishment gossip about a "crypto winter"-and general ridicule via digital ponzi schemes. But in the middle of the sniping, investors should have noticed another important-albeit less discussed-topic in the debate about digital assets: namely that the large central banks in the world are increasingly interested in using distributed LEDGER technology or blockchains.

This is not because you like the digital currencies of the retail banking banks that normally make headlines. Yes, the mighty People’s Bank of China tests this together with some smaller emerging countries, including Jamaica. The European Central Bank also thinks about how François Villeroy de Galhau, the governor of the French central bank, said Davos.

However, most western central bankers are careful to create CBDC for private customers - i.e. have citizens hold digital central bank money - because they fear the consequences of being responsible for their data, and/or rejecting the idea of ​​a disintering mediation of commercial banks. The crash of Terra has also reduced every feeling of urgency. The same also applies to the fact that mobile payments make it easier, faster and more efficient to use inconspicuous Fiat currencies.

But what arouses the interests of the facilities is the use of CBDC for cross -border wholesale payments to move funds between financial institutions and central banks. "We believe in wholesale [CBDC] and we have carried out nine experiments [with thesis]," de Galhau told the WEF and found that although "the public interest in CBDC for retail", this is missed.

or like Ravi Menon from the Monetary Authority of Singapore, which has been experimenting with CBDC for seven years, recently said at an important central bank meeting in Zurich: "We bark with retail CBDCs on the wrong tree. The tree we should bark up are cross-border CBDCs in wholesale." In view of the mysterious functioning of wholesale markets, this may not be what most politicians or normal citizens want to hear. But it plays a role because the focus on two key factors is driven.

One is the realization that the current cross -border payment systems are painfully slow; So much that Roberto Campos Neto, the Governor of the Brazilian Central Bank, recently said at an IMF session-only partially in the joke-said that it was faster to move from São Paulo to London by climbing an airplane with cash than using an official bank.

If the central banks "scale [Wholesale CBDC] and atomic processing, they can make transverse payments at almost zero costs, and the advantages are enormous," said Menon in Zurich. Or like crystalina Georgieva, head of the IMF, Davos said: "CBDC is not yet internationalized, but here is the chance." So there is a real use case.

The second attraction is cultural: a CBDC in wholesale can be organized by a club of central bank technology without the need for many debates with politicians or voters.

This does not make it easy to create large-scale CBDCs on a large scale. Far from it. The technological hurdles remain discouraging. Central banks can also demand large trade CBDCs to hand over a little sovereignty, since the use of distributed digital main books means that they no longer control Fiat currencies in a conventional way. That requires mutual trust.

However, the tribe of the central banks, which gathered around the bank for international payment compensation in Basel, generally trusts each other - and more than their own domestic politicians. More than a dozen cross-border CBDC wholesalers were carried out, not only with the French and Singapore central banks, but also with countries such as Switzerland, South Africa, Thailand, China and the United Arab Emirates.

It is not clear whether these can be scaled. An essential block, as Georgieva emphasized at the meetings in Zurich and Davos, is that there is still no "interoperability" between these separate pilots. But if this is the case - i.e. created scalable systems - there would be other interesting implications.

One is that future historians could come to the conclusion that the most important long-term episode of Distributed-Ledger technologies for finances were not Bitcoin and other cryptocurrencies. Instead, it was in deep boring corners of the bank, such as B. wholesale payments.

You could also decide that Distributed Ledger was presented as a tool that could snatch the established institutions, but this innovation consolidated them again in a way. The Davos Elite usurpates the dream.

Of course, Bitcoin Maximalists would reply that CBDCs are therefore a bad (if not unenforceable) idea; They assume that the central banks cannot continue to hoard money. Maybe so. But the true morality of all of these discussions is that "blockchain" can mean a variety of different - and sometimes contradictory - things.

gillian.tet@ft.com

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