The central bank think tank OMFIF has unveiled the Digital Monetary Institute as a forum to bring together the private and public sectors to explore digital finance, including central bank digital currencies (CBDC).
Earlier this year, the organization published a joint survey with Ipsos MORI exploring consumer attitudes towards digital currencies issued by central banks and the private sector.
CBDC has become a more pressing priority for central banks, first with the unveiling of Libra by Facebook, and more recently with the challenges of distributing financial help to citizens during the COVID-19 crisis. This is in addition to the previous motivation to address the replacement of cash.
OMFIF acknowledges that one of the effects of CBDC could be changes in the extra-territorial weight of leading currencies and it may become a significant factor in geopolitics. While the chief economist of the IMF disagrees, Ledger Insights previously explored in depth the reasons for the potential increased prominence of the Chinese renminbi.
However, given the current COVID-19 pandemic, the immediate focus is on domestic use.
“I think one of the near term impacts of COVID is it’s (CBDC) going to be more focused within national borders,” said Philip Middleton, Deputy Chairman of OMFIF. “Once you go outside the borders, the whole question of interoperability arises, responsibility for supervision, and any counterparty risks that’s in there and so on. And I think, at the moment, the whole notion of some supranational UN type body for digital currency is completely off everybody’s agenda.”
Middleton clarified the positioning of the Digital Monetary Institute.
“BIS Innovation Hub is a prototype sandbox. It’s looking at testing specific prototypes and it’s run by the central banks. What we’re doing is complementary to that. We’re in regular conversation with the BIS,” said Middleton.
He continued: “And we have members both from the public sector, not only central banks, governments, sovereign wealth funds, ministries of finance and so on. And the private sector all the way through from technology companies through to lawyers who, of course, are enormously interested in all of this.”
So the primary goal is to bring the two sets of interests together in a confidential environment.
“One of the reasons for founding the Institute is there’s a strong realization by the central banks that they’re neither able to nor do they particularly wish to drive CBDC particularly on the retail side all on their own,” said Middleton. “They realize they are going to need the private sector to help them do it. And for its part, the private sector has realized they can’t do this without central monetary authorities and regulators.”