It was said that CBDC and not Bitcoin, is the new blockchain. Since four years ago, from 2014 and on, discussions of a publicly accessible digital payment vehicle issued by a central bank matured importantly. CBDCs or Central Bank Digital Currencies were the centers of a lot of high-level discussions, notably at the BIS (Bank for International Settlements)  and the IMF (International Monetary Fund).

The numerous reports from some experienced central bankers validate blockchain technology in a way which crypto-anarchist, as well as armchair blockchain economist and even millennials who got smoked by buying cryptocurrencies during the last Thanksgiving in 2017, can be collectively proud of.

But, the cruel reality is that consumers’ adoption of some new retail payment innovations is usually painful – no matter if that innovation is magic internet money or some new Sacagawea U.S. dollar coins. Moreover, just like payment habits with the credit cards, physical cash or cell phone use varieties from country to country, different regional consumer preferences which regard anonymity, fees or even interest payments are going to persist with a digital manifestation of physical cash.

Some new technologies are also cool, but the road to adoption is faithless – history is actually littered with the discomposed debris of failed payment innovations which didn’t provide the things that consumers actually wanted.

New approaches in Brazil

The wide-scale and successful implementation of CDBC is going to require architects to consider consumer demands and preferences, as well as payment habits in specific countries – probably resulting in idiosyncratic design decisions.

Adding to the growing discourse on this topic, in one research report from recently for R3, JP Koning evaluated what a CBDC might look like if it was to be issued by the Brazilian central bank, which is the eighth largest economy in the world.

While the paper actually anchors analysts through some particular treatment of the market of Brazil, a lot of the design decisions which central banks would need to make can be generalized to some other economies too.

Building on his work from earlier, JP questioned whether CBDCs should be In bearer from or account-based, if they should be private such as physical cash or if they should have identities which are tied to transactions and if CBDCs should pay some interest or not.

There were three potential high-level archetypes for CBDC which he presented: a cash-like digital bearer instrument, then an account at the central bank and a hybrid approach which is a combination of features of accounts and cash.

Central banks’ innovation teams did excellent work with blockchain technology

So, the innovation teams of central banks did an incredible job with blockchain technology.

One report from recently, which was on creative approaches to cross-border settlement systems by the MAS or Monetary Authority of Singapore, the Bank of England, as well as the Bank of Canada, is a must-read for payment nerds.

The accent put on wholesale or interbank payment is entirely merited as these projects are more contained in scope and can also provide more concrete benefits to the participants on the market, at least in the short term.

Still, while the progress with the wholesale is excellent, the retail or consumer payments are ripe for innovation too.

CBDCs for the people in different regions

Despite all the persistence of and even the increases in the amount of physical cash in the different areas, consumers all over the world are trending towards digital payment use.

The building of some digital solutions on the financial market infrastructure which already exists is probably going to enable sector-led retail level payment innovations to get so far.

Some already existing underlying payment infrastructures in a few regions can also lead to interoperability, as well as access limitations and complexities.

Some future innovation with platforms backed by central bank-issued money, if done with some careful and responsible architecture, has the power to better serve payment niches which are either currently poorly addressed by the private sector or fill the future gap which is left by the inevitable decline of the paper in the wake of more digital payment volume.

The ‘big bang’ move to the cryptos may almost be impossible, but a planned, as well as deliberate phased rollout of a CBDC,  is not just possible, but it can be something that certain types of consumers in some regions need.

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