GB Market Commentary 27/07/2021
by William Morris
Today’s market commentary will focus on Central Bank Digital Currencies (CBDCs). So far over 80 countries have confirmed they are exploring CBDCs. Widespread interest in CBDC adoption will have a marked impact on traditional methods of currency exchange. Existing currencies, developed in a less globalised world, were not designed for efficient cross-border exchange. SWIFT handles approximately 5bn transfers every year – most take three days to settle, with varied fees. A major issue resulting from this system one of liquidity, McKinsey estimated in 2016, almost $5 trillion sits dormant in currency exchange accounts globally. To put that figure in perspective the UN estimates the total cost of the pandemic at around $1 trillion. Representing a huge opportunity cost. Global CBDC adoption appears increasingly likely – a question of ‘when’ rather than ‘if’. China is currently testing a digital yuan in its major cities. The People’s Bank of China has said it will explore cross-border payment programs in coordination with other central banks. China has reiterated that they are not looking to replace the US dollar or any other international currency but rather to facilitate international trade and investment. In the US, the Federal Reserve Chairman, Jerome Powell said earlier this year the digital dollar was a ‘very high priority’. The US is currently working on two digital dollar projects. Christine Lagarde has proposed a digital euro which would: “guarantee that citizens in the euro area can maintain costless access to a simple, universally accepted, safe and trusted means of payment.” This month the EU launched a digital euro project, backing this statement. While in the UK, The Chancellor of the Exchequer Rishi Sunak, has launched a task force within the Band of England to explore the case for introducing a CBDC in the UK – this has dubbed Britcoin. The BoE Deputy Governor, Jon Cunliffe, emphasizes that the bank sees CBDC introduction as an innovation rather than a threat. The BIS, World Bank and IMF urge CBDC interoperability for cross border payment – some argue this could be best achieved through public / private collaboration. Over 4 years ago, Jeremy Wilson spoke of the importance of banks working together to create industry standards to allow the best outcomes for blockchain technology. Last month the ‘Digital Pound Foundation Limited’ was incorporated on UK Companies House with a Jeremy Wilson listed as one of the four listed directors. The four Directors are thought to be Richard Ells (CEO & Founder Electroneum), Susan Friedman (International Policy Council at Ripple), Jeremy Wilson (Vice Chairman of Corporate Banking, Barclays / UK Payments Industry Government Coordination Committee) and lastly, Gilbert Veridan (CEO & Founder Quant Network). It’s worth noting that the listed Directors could be namesake’s and it should be acknowledged the formation of this company by no means necessitates the rollout of a product or service. However, this is potentially very exciting for the UK CBDC market, as well as the global one. Building on previous projects and their combined experience, this elite team appears well poised to be able to create an industry standard framework for a CBDC global network – from a compliance and a technical perspective. Gilbert Veridan recently supported calls for interoperability tweeting: “All CBDCs should be interoperable domestically which gives commercial banks choice and allows for cross border transactions” –tweeted regarding Quant Network’s potential application. Currently 53 Countries are working towards Blockchain standards set out by Gilbert Veridan – ISO Standard TC307. There seems to be consensus that CBDC technology cannot and will not replace the existing financial system. However, shared protocols and collaboration with the wider cryptocurrency community, may offer the best solution to inefficient practices currently employed. It will be exciting to see how this plays out and the opportunities CBDCs will create in the crypto sphere. In addition, it may help create a level playing field for countries with less liquid currencies and free up global capital which could be used as a force for good.