Tan Kin Lian - Perspectives Central bank digital currency
Several countries have embarked on developing a central bank digital currency (CBDC). Singapore is one of them.

I am not aware of any country project that has been successful. Some of these projects did not take off, others were not successful.

I suspect that the underlying problems fall into the following categories:

a) Some countries are not clear about the purpose of the CBDC. Is it intended to be used at the retail level, involving individuals, or among the businesses.

b) Some projects aimed to use blockchain technology. This is not necessary and make the platform costly to manage and for people to use.

In my view, there is a need for the CBDC to be used at the retail level, and to replace cash transactions as much as possible, but not totally. The CBDC should be managed as a state project, as opposed to the banking system, which are run by mostly private banks.

The benefits of a state run CBDC are:

a) Every resident, including those who do not have a bank account, can have a CBDC wallet to be used for transactions. The CBDC wallet is free and available to every resident.

b) The individuals do not need to pay any fee to use the CBDC wallet, like cash transactions are free to them. The merchants may have to pay a fee that is much lower than bank charges.

c) The CBDC transactions can be made by using a QR code or by a payment card.

d) Payments can still be made by bank cards and by the CBDC wallet. This will provide an alternative method of payment, in case one of the platforms is unavailable.

e) Individuals can still pay by cash, but it is likely that the merchants will prefer to be paid by digital payment. In due course, cash transactions will gradually disappear.

f) The CBDC will use the traditional database approach, and will not use the block chain method.

I look forward to a country adopting this approach and prove that this method is practical and effective.

Tan Kin Lian

Add Comment

---