Authors: Ben Ashby and John Purcell
Central Bank Digital Currencies (CBDC) offer an opportunity to reform or even radically change the financial sector for the wider benefit of society:
Huge changes are beginning to occur in financial services due to advances in technology. The race is on to become a leader in the next generation of ‘data centric’ businesses on a both micro AND macro level.
Not just individual firms will be left behind but possibly entire financial centres too.
Central Bank Digital Currency is a complex subject area, but one that could act as a core driver in any national strategy to boost wider technological development.
This could lead to large benefits for the real economy such as financial services at lower cost or more financial inclusion.
Even at the macro level, policymakers could benefit from a far great understanding of how the real economy functions.
China has started to implement many features of best practice in CBDC - other countries will be regretful laggards.
Through innovation and application of superior technology a wide range of possibilities could be available from cheaper and more effective banking, including those currently unbanked, through to a completely different international payments architecture. The possibilities don’t end there; properly implemented - as part of a wider strategy - CBDC could serve as a wider test bed for the new generation of data centric companies and ways of doing business more able to meet the demands of an information driven economy.
Unfortunately, at the current rate of progress this is unlikely to happen.
The approach adopted by many of the Western governments, such as the UK, means that this opportunity will be lost. A combination of excessive conservatism, a lack of the key skills required and a consensus-based approach that includes incumbent firms - whom have a deep interest in protecting the status quo or are culturally unable to adapt - will prevent any meaningful change to happen.
That is not the worst of it however; the strategic opportunity cost of timidity could well be a blow that will never be recovered from as rival solutions, systems and financial centres benefit.
Ben Ashby is a Partner at Good Governance Capital. Previously Ben was a Managing Director in JPMorgan’s Chief Investment Office & Treasury.
John Purcell is Managing Partner at Good Governance Capital Ltd