Digital currencies are being increasingly looked into around the world, with most governments and corporations alike working on some iteration of the technology. In this regard, a senior official at the International Monetary Fund (IMF) believes a private-public nexus is the way forward for CBDCs.
Public-Private the Way Ahead
Tommaso Mancini-Griffoli, the IMF’s deputy head for Capital Markers, says state-backed digital currencies can open doors for innovation in the retail payments space. He adds such a project can be done in partnership with a private entity, one that can build the underlying infrastructure and tap into industry talent.
Terming it a “synthetic” CBDC, Griffoli states a private payment provider, such as eMoney, can store client funds in a central bank account while receiving custodial benefits. In turn, they can “package” the asset and provide it as a tradeable stablecoin to clients.
Griffoli spoke on The Money Movement, a new YouTube series started by Circle’s Jeremy Allaire. He states the benefits of a private-public stablecoin, or a synthetic CBDC, is that it makes “space for innovation” compared to a bank-issued product.
Private entities can foster continual updates, development, and debugging while providing unparalleled customer service among other front-facing benefits. In contrast, says Griffoli, central bank products can be slow and deter innovation, while presenting “very costly” and “very risky” challenges for the latter.
“This public-private partnership is intended to conserve the competitive advantages of the private sector: to interface with clients and innovate, and the comparative advantage of the central bank: to regulate and provide trust.”
His views are echoed by Tobias Adrian, the IMF’s director of the Monetary and Capital Markets Department, who said in May 2019 a notable advantage of a private-public CBDC meant central banks provide value only in their area of expertise; regulatory oversight and settlement.
The lines between private and public control will be well-defined to avoid a potential conflict of interest, says Griffoli, adding “would a central bank ensure private entities undertake proper due diligence on clients, and would they provide input on what the tech design of the token itself would look like?”
Another concern is that of creating competing entities. In theory, different private firms could create their independent versions of the central bank-backed stablecoins. All such assets would be backed the same liabilities, meaning similar risk but varying benefits.
Meanwhile, some central banks have previously started brainstorming on an approach suggested by Griffoli. The Bank of England, in 2019, said private entities had a role to play in a CBDC, harness the central bank’s regulatory oversight while maintaining control over technological aspects.
China has already carved out a consortium. The country’s Agricultural Bank of China, with Alibaba and Tencent in tow, is working on the upcoming “digital yuan” for its citizens. However, as BTCManager reported last week, the country could now be looking at an East Asian stablecoin as well.