According to a Nikkei report, the head of six major central banks plus the Bank for International Settlements have scheduled a meeting for April this year to discuss digital currencies. This is the first time such a meeting is being held. At the meeting, the banks will discuss the development of digital currencies, which can be used in lieu of Facebook Libra and the coming Chinese digital Yuan.
Those Attending the Meeting
The report indicates that those attending will be the heads of the central banks of Canada, Sweden, Switzerland, the UK, Japan, and the head of the European Central Bank. These six banks formed a working group with the BIS at the start of this year. The purpose is to conduct joint research on the merits and downsides of launching digital currencies.
The central banks plan to create common standards to govern the issuance of digital currencies. Their focus is on the area of interbank settlements and international transactions. Another key issue that they plan to look into is the security of digital currencies.
According to the deputy governor of the Japanese central bank, it’s natural for the working group to look into international transactions and how they can be made more conveniently. International payments are currently a contentious issue due to the high fees that are charged to make such transactions.
The Chinese and Facebook Libra Threat
China is the current leader globally when it comes to digital currencies. It has been researching a digital currency for the past five years and it has advanced a great deal technically. There are whispers that the nation could launch its digital currency as soon as this year. Visionary Financial recently reported the model on which the Chinese digital Yuan will be based. The report revealed that China’s digital currency would be based on a two-tier model, with China’s central bank at the top.
Another digital currency that is a major threat to the current financial order is Facebook Libra. It has caused central bankers sleepless nights around the globe. Many have vowed to ban the digital currency. However, banning an intangible asset might prove to be quite difficult. It is amongst the reasons this meeting is taking place. The central bankers want to be able to maintain control of their monetary policies by providing citizens with an alternative.
None of the Banks Plan to issue a Digital Currency Soon
While these six central banks, which represent a significant portion of the global economy, are holding serious discussions about digital currencies, none of them plan to issue a digital currency in the near future. Senior officials from the banks plan to prepare and present their findings before a meeting on the sidelines of an international conference that will take place in Washington. After that, the members will present an interim report in June 2020 and a final report around October.
With such high-level meetings being organized, it is safe to say that soon, several central banks will follow in the footsteps of China and issue their digital currencies. Banks continue to experience competition from FinTech innovators. According to an article by Forbes, a majority of revenue from banks come from their "card services." Before FinTech was a thing, large banks essentially didn't have to monetize. Their large client base was enough to gradually grow profit margins over time. With the evolution of FinTech ( especially payments ) , banks will have to scale into new horizons to maintain market share long term. In a cut throat industry like banking, every little move matters. The second a large bank implements a digital currency, it’s going to take the industry by storm. Moving money in the banking system today is still a nightmare. Standard ACH transfers for example can take multiple days, and setting up a wire isn't cheap ( depending on who you bank with ). The efficiencies of a digital currency would solve major issues that banks face on a daily basis.
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