This week, HSBC Group CEO Noel Quinn shared his views on central bank digital currencies (CBDC) in a company insight article. He revealed that HSBC is already working with central banks of the UK, France, Canada, Singapore, mainland China, Hong Kong, Thailand and the UAE for research. He wrote favorably about the central bank-backed nature of CBDCs in comparison with other private digital currencies such as stablecoins and crypto-assets. However, not all commercial banks are embracing CBDCs.
“They (CBDCs) could also fuel innovation across the financial sector,” he said.
On the potential benefits offered by CBDCs, Quinn was optimistic. As a digital replacement for physical cash, CBDCs would eliminate the costs incurred from handling cash, leading to cheaper and more efficient payments.
Speed would also be a significant advantage, according to the HSBC CEO. The ability of CBDCs to carry out atomic transactions would lower the cost of trading bonds and may aid monetary policy objectives.
Quinn’s sentiments faintly echo those of Benoît Cœuré, the Head of the Bank for International Settlements, who expressed his bullishness for a CBDC in a speech earlier this month.
“The financial system is shifting under our feet,” Cœuré said, and when it comes to CBDCs, “the time has passed for central banks to get going.”
Some banks fear CBDC
Not all bank personnel are embracing CBDCs, though. Some see it as a threat, although it depends on the design. In March, Dr. Jorg Kramer, the Chief Economist of Commerzbank, Germany’s second biggest bank, claimed that the European Central Bank’s real motivation for issuing a digital euro was to expand its influence.
Last month, JP Morgan strategist Josh Younger also expressed concerns about CBDCs on the risk of commercial bank disintermediation.
It seems that the banks are somewhat divided on the benefits of a CBDC. HSBC’s Quinn concluded his article by expressing his bank’s CBDC design preference and reiterating HSBC’s active interest in CBDC development.
“HSBC believes a hybrid model – sometimes called a two-tier model because the CBDC itself is a claim against the central bank but commercial banks provide the payment services and account management activity – is by far the best design option,” said Quinn.
“As one of the world’s largest financial institutions, with deep experience of cross-border payments and foreign exchange markets, HSBC will continue to be involved in discussing and developing CBDCs.”
Meanwhile, four of the banks with which HSBC is partnering – China, Hong Kong, Thailand and the UAE – are presently collaborating with the Bank of International Settlements on the M-CBDC Bridge project, where HSBC is a likely participant.