Key CBDC Insights from the Global Digital Monetary Institute Symposium

The Digital Monetary Institute (DMI) Symposium, held in London on May 10-11, 2023, brought together digital currency experts from over 90 central banks, regulators, financial institutions, and technology companies to discuss the latest developments in digital finance.

Attendees had the opportunity to learn about the latest advances in digital finance and network with experts in the field.

The symposium consisted of eight sessions covering various aspects of digital finance, such as the design and implementation of retail CBDCs, the role of stablecoins and tokens, cross-border payments, and digital asset regulation.

Pavlo Sidelov, the Founder and CTO of SDK.finance and author of the book “The World Of Digital Payments: Practical Course,” participated in the symposium and shared his insights on the future of CBDCs.

Challenges associated with CBDC implementation

CBDC undoubtedly holds significant potential, and central banks around the world are increasingly exploring the possibility of implementing retail CBDCs.

Digital currencies have the potential to serve as a powerful tool on the road to a cashless society and provide a robust alternative to the dominant card schemes such as Visa or MasterCard in the digital payments space.

A poll response from attendees at the DMI symposium 2023.

Source: Digital Monetary Institute

However, central banks face numerous technical and regulatory challenges in developing and implementing a CBDC.

Their primary goal in this context is to ensure the availability of central bank money to consumers in the modern economy. The stability of the monetary and financial system supported by safe central bank money is critical, especially given the credit and liquidity risks associated with private money.

Financial stability

In terms of financial stability, the introduction of digital currencies leading to a shift of bank deposits into CBDC and stablecoins may lead to higher lending rates.

Central banks face the challenge of serving not only other banks but also individual consumers. Traditionally, central banks have interacted primarily with banks and are unfamiliar with the individual consumer market and its dynamics. To successfully adopt digital currencies, they will need to reevaluate their operations and gain a deeper understanding of this market and its interconnectedness.

Regulations

There is still much for central banks to do to bring clarity to the digital currencies space. The need to develop a regulatory framework is now the focus of attention.

The difficulty is that regulators must respond to the constant changes in the digital payments space and strike a balance between maintaining stability and encouraging innovation and associated benefits.

Another factor adding to the complexity is the fact that each central bank must develop its own regulatory framework and then ensure interoperability in cross-border payments at the international level.

However, despite the fact that digital asset regulation is still evolving, it has become clear that regulators are taking the legal issues seriously.

Privacy and security

After the regulatory barrier, cybersecurity is another significant obstacle to overcome in digital finance.

Concerns are growing among individual consumers, who fear that the introduction of CBDCs could lead to a future in which every microtransaction or purchase made with digital currency is or can be tracked, unlike cash transactions.

To address privacy concerns related to government-sponsored programmable money, it is critical to prioritize the security of the system and ensure that no programmable functions are initiated by governments or central banks. Maintaining the integrity of the system is of paramount importance.

Technology

The technological development phase of a retail CBDC is immensely important due to its central role in the financial system. Building a dedicated ecosystem is essential to facilitate digital currency functionality, transaction processing, payments, and money transfer.

Central banks typically lack experience in this area, which may require the involvement of expertise and technical solutions.

It was emphasized that the core ledger for CBDCs must meet strict criteria that include robust data protection and high-performance capabilities. However, it is critical to strike a balance between providing security guarantees and maintaining transaction speed.

While distributed ledger technology can contribute to decentralization, it also carries the risk of unnecessary technical complexity. Therefore, it may prove beneficial to explore alternative data management strategies that offer similar decentralization benefits.

SDK.finance core ledger software and its CBDC potential

As a FinTech and PayTech software provider, SDK.finance has its hand on the pulse of developments in the CBDC space, as I believe this is the money of the future and I want my company to be a part of it.

In October 2022, the SDK.finance team placed second at the CBDC Hackathon 2022, organized by Barclay’s Rise in London. They presented a fully interactive prototype that addressed the CBDC Coding Challenges and demonstrated the capabilities of their solution.

The prototype was built on the SDK.finance Core Ledger platform, which serves as the foundation for transactional accounting and supports multi-asset/multi-currency capabilities. It includes key entities such as accounts, banks and customers. These functions enable seamless integration with any CBDC layer and streamline operations related to digital currency accounts.

Basically, our ledger layer can be integrated into any central banking system and provide an ecosystem for digital currencies to operate. In other words, it provides an environment for digital payment instruments, allowing the creation of CBDC accounts, the loading of funds via cards or bank transfers (with fiat money), transfers in digital currency or payments on the website POS. Check our acticle about general ledger in banking to explore its posibilites for financial business.

We are ready and eager to enter the field of digital currencies and invite the institutions dealing with the challenges of CBDC technology to cooperate with us.