At the Finance Magnates London Summit 2018 last week, the CEO of Coinbase UK, Zeeshan Feroz, made some “spontaneous comments” about central bank digital currencies, just a short time after hearing the speech on this subject given (at the Singapore Fintech Festival) by Christine Lagarde, the managing director of the International Monetary Fund (IMF).

Feroz started by noting that Lagarde’s speech had been “mostly positive and encouraging,” before saying that he would try to explain what the purpose of a central bank digital currency (CBDC) is.

“I think it’s a good thing. I think a central bank backed asset is actually a step in the right direction, and I feel like it’s an endorsement of the technology, and it really is an acknowledgement of a future that is imminent where money is digital…

How CBDCs Could Make the Financial System More Efficient

“When you look at the traditional financial system, much of the risk today stems from the fractional reserve model that we have, and a central bank issued coin essentially cuts out the retail banks… So does this mean they are going to disappear? I don’t think they will… In fact, I think they’ll be forced to innovate… They’ll be forced to create value for consumers not just be offering a standard account, but in other ways… 

So, the outcome here is that the financial system, in my opinion, will become more efficient, accessible, and there’ll be more competition between the retail and the central banks.”

Financial Inclusion

“I think a digital currency, centralized or decentralized, helps drive financial inclusion, and that’s a goal we are all pulling towards in this space…

So, if you look at the stats… Two billion people without a bank account… 16 countries where less than 15% of the population has access to bank accounts… Now, in the same countries, some of them are touching 80% of the population with a mobile phone. So, there’s a huge gap in these markets which can be very quickly plugged by creating or moving the financial system away from traditional banks into cryptoassets and wallets which can be delivered over your phone…

It creates a global market for just storage of value, and the players in that could be central banks, it could be retail banks, or it could be decentralized institutions as they exist today.”

How CBDCs Will Drive Adoption for Decentralized Currencies

“A centralized currency forces mass adoption… A central bank currency might be a few years down the line, but a step in the right direction will kick off a hive of activity in that space, particularly in the sense of building infrastructure… whether it be wallets, whether it be insurance policies, whatever that infrastructure is… and the biggest win with that is [that] this infrastructure is transferable. It might be born for a centralized currency, but it will benefit and be useable for decentralized currencies in the same way.”

Implications of CBDCs for Stablecoins

Feroz said that CBDCs eliminate the need for today’s stablecoins:

“What we are trying to do is bridge the gap between the fiat and the crypto world, but if the fiat world enters into the crypto space, then a fiat-backed crypto coin like USDC… I really think it becomes redundant at that stage. But I am also very cautious to say that from a stablecoin point of view, it’s only a fiat-backed coin that becomes redundant because as you start to think about choice and how people store their value, you have stablecoins that are backed by commodities… If you want your wealth pegged to gold, you can do that. If you want it pegged to a basket of cryptocurrencies, you can do that too.”

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