Central banks are striving to keep control of the cryptocurrency wave by launching their own digital currencies — but they are moving too slowly and risk being left in the dust as private sector stablecoins sweep all before them.
“In India we are of the view that CBDC is the answer for cross-border payments,” said Sanjay Malhotra, governor of the Reserve Bank of India (pictured), in an onstage interview at the International Monetary Fund on Wednesday.
But unless other countries also adopt CBDCs, India will not see the benefits, Malhotra admitted.
The country is expanding its CBDC pilot programme and launched a retail sandbox for the e-rupee earlier this month. But in the meantime, stablecoins outstanding globally have hit $280bn, according to analysts at Citigroup.
“I would rather urge all those presidents from central banks and other jurisdictions that we need to promote the CBDC, because this has huge advantages over stablecoins,” Malhotra said. “[CBDC] can be tokenised, it can reduce [the cost of] cross-border payments while being fiat, having the advantages of the integrity of money.”
Concern among central bankers that stablecoins might eat CBDCs’ lunch is palpable, but in truth there is “no CBDC lunch to eat,” said Timothy Massad, a senior fellow at the Brookings Institution’s Center on Regulation and Markets.
The Atlantic Council has counted 137 countries and currency unions, representing 98% of global GDP, which are exploring a CBDC. But just three have actually launched one — the Bahamas, Jamaica and Nigeria.
Progress on CBDCs from major global central banks is limited. China is testing a CBDC — the e-CNY. “But you have seen very limited take-up,” Massad told GlobalMarkets.
That is not because China is using stablecoins, but because it already has a fast payments system in Alipay and WeChat Pay.
The European Central Bank has said 2029 is a realistic date to have its CBDC ready and launched, but this is likely to be a best case scenario.
“No one believes quick moves should be done,” Lithuania’s vice-minister of finance Januš Kizenevič told GM. A eurozone CBDC was definitely needed, he said. But there are also “huge financial risks” that mean a broader, deeper conversation is needed before anything is launched, he added.
Yet by 2030, when the ECB’s proposed CBDC may be only months old, Citi analysts expect stablecoins outstanding to have reached $1.9tr in a base case and $4tr in a bull case. Their predicted band for stablecoin-based transaction activity is $100tr to $200tr.
Dante Disparte, chief strategy officer at Circle, the world’s largest regulated stablecoin issuer, pointed to emerging use cases that were “impossible when stablecoins were on the edge of finance”.
This includes using stablecoins as collateral in capital markets. “You’ve seen announcements from Deutsche Börse in Europe partnering with Circle and using our euro-denominated stablecoin as a new form of collateral,” Disparte said.
Last week, 10 leading international banks announced they were jointly exploring a 1:1 stablecoin backed by G7 currencies. The group comprised Bank of America, Barclays, BNP Paribas, Citi, Deutsche Bank, Goldman Sachs, MUFG, Santander, Toronto-Dominion and UBS.
But stablecoins’ success does not mean CBDCs are doomed. Tom Zschach, chief innovation officer at Swift, expects dollar-denominated stablecoins, tokenised commercial bank deposits and CBDCs to exist side by side — likely serving different use cases.
He pointed to Dubai as a vision of this financial future: “They have all three live, or soon to be live: a central bank digital currency, a tokenised deposit and a stablecoin for things like remittances.”