Emerging markets have to slowly hurry at CBDCs.

The author is a former governor of the Reserve Bank of India

The Fed faces the digitization of the dollar ambivalent, at least it seems to emerge from the discussion paper that it published last week. Australia remains skeptical about the advantages of a digital currency of the retail bank. Although the Swedish Riksbank is a pioneer in the CBDC area, it is still in the exploration phase. According to current indications, a “Britcoin” of the United Kingdom is unlikely before 2025.

This devastating attitude is in contrast to the urgency with which numerous emerging countries approach CBDCs. About half a dozen has already issued official digital currencies - the Bahamas with their sand dollar are the first. China tests its e-Cny intensively in several regions. The highly expected cryptocurrency law, which is to be brought in shortly in the Indian parliament, is intended to create the legal framework for the introduction of an e-rupie.

industrial and emerging countries see the arguments for CBDCs differently. While the former are not yet convinced that the advantages outweigh the risks, the latter seem to have been driven by fear and opportunities. Her greatest concern is that private cryptocurrencies affect your own monetary sovereignty by suppressing Fiat money. This was not a big problem with Bitcoin and his early rivals - despite the libertarian zeal of their creators to break the bonds of official currencies, they have not yet done so.

In stable coins, which are covered by currency reserves such as the dollar or the euro, the story could look very different. These currencies have the potential to move transactions from the domestic banking network into their own ecosystems and thereby urge the central banks from the cycle of economic activity. The ability of a central bank to set interest rates, control the money supply and control inflation would be at risk.

How credible is this threat? Since huge technology platforms are planning to launch their own stable coins together with a tempting suite of services for their billions of customers, the substitution of national currencies through transnational digital currencies is no longer possible. It is likely. Many of these stable coins are probably linked to the dollar. Far from regulating it, the United States could actually see an opportunity to expand the range of the worldwide dominating reserve currency. What prevents stable coins that operate beyond the regulatory eye, to detach themselves from the reserve binding, become independent monetary creators and to undermine domestic politics?

The emerging countries also fear the growing dependence of their population on private payment systems. The central banks fear that the hacking or failure of these systems could undermine the integrity of their currencies. CBDCs offer a way to provide a failure -proof centralized alternative. Apart from the fear, emerging countries also see several options in CBDCs - the promise to reduce the costs for cross -border and domestic payments, to deepen the financial inclusion, control counterfeits and to save the costs for printing and distributing currencies.

However, there are some delicate challenges. The first is the possibility of "bank disorder" that can happen when people switch to risk-free CBDC accounts at commercial banks. This will increase the costs of deposits and thus the credit costs - a worrying view at a time when growth in the emerging countries is increasingly driven. Fortunately, however, this is not insurmountable and can be mitigated by limiting both the amount that people can hold as CBDCs, as well as the interest rates that the central bank can offer.

A greater challenge concerns data protection: In contrast to cash, CBDC transactions leave a trail. Regardless of the fact that this detered illegal activities; Even honest people could be uncomfortable that the state can spy on its financial transactions. Robust data protection laws that arouse the public's trust are therefore essential.

In view of this, the dictum for emerging countries should be the Latin proverb when introducing CBDCs Festina lente: "hurry with a while".