Banks will gain new commercial opportunities as nations around the world issue central bank digital currencies, according to industry players speaking at the CordaCon conference in London on Sept. 27.
Central bank digital currencies, or CBDCs, will allow commercial banks to sell new services beyond their usual customer base, said Silvia Attanasio, head of innovation at the Italian Banking Association.
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One of the "superpowers" of a CBDC is that it transforms the currency into a "sort of platform" where banks and payment providers can offer solutions to the entire number of users of the currency, rather than only to their own customers, said Attanasio, who is a member of the market advisory group for the digital euro.
"It's something very interesting for commercial banking," Attanasio said. "Give us a raw material, provide the digital euro with programmability functionalities, and we will be able to offer new, innovative services."
CBDCs gaining currency
Globally, more than 100 countries or currency unions are exploring CBDCs, according to the Atlantic Council's CBDC tracker.
In Europe, the European Central Bank is working out design and distribution models for a digital euro, and earlier this month appointed a consortium of five banks and payment providers to develop a joint prototype. CaixaBank SA, Amazon.com Inc., Worldline SA, Nexi SpA and the European Payments Initiative will develop potential user interfaces focusing on each of their use case of the digital euro.
The euro is the second most-used currency worldwide, with around 341 million users every day, according to the European Union. The ECB's work to study a digital version of the currency will last until the first quarter of 2023 and could be followed by a pilot.
Upbeat tone
CBDCs could help regulators preserve the role of central bank-issued money amid a decline in the use of cash, but commercial banks have warned that such coins could erode their deposit bases and increase the risk of bank runs.
But as CBDC projects progress globally, commercial bankers appear increasingly upbeat.
"We're certainly fully involved in the discussion," said Matt Shepherd, who leads Wells Fargo & Co.'s digital currency and asset tokenization product management and strategy.
"We do really view it as an opportunity," said Amar Amlani, head of digital assets for Europe, the Middle East and Africa at The Goldman Sachs Group Inc. Financial institutions could help customers facilitate wholesale payments using CBDCs, while on the retail side, banks will play a role as intermediaries between central banks and retail customers, Amlani said.
Goldman Sachs, alongside Spain's Banco Santander SA and France's Société Générale SA, last year helped the European Investment Bank settle a digital bond using a CBDC facilitated by Banque de France.
Some 11 countries have already fully launched a digital central bank coin, while another 15 nations, including China, Russia and Sweden, are conducting pilots, according to the Atlantic Council. The U.S. is also exploring a digital dollar but is still in the research stage.
Driving innovation
In Italy, banks have had a "very pragmatic approach" to the digital euro, Attanasio said. Around 100 Italian financial institutions are already live on Spunta, a blockchain-based network for interbank transactions, which has given banks an understanding of the potential of blockchain, the technology that underpins CBDCs, Attanasio said.
As banks seek to take advantage of the opportunities offered by CBDCs, Attanasio expects competition for customers to intensify, which will ultimately drive more innovation.
"It will push banks to offer the best innovative and value-added services, because my bank can offer the same services to customers of your bank," she said.