CBDCs and commercial banks: Evolution or Revolution?

As countries around the world accelerate the development of retail central bank digital currency, the impact on commercial banks and their role in this endeavour remain uncertain. OMFIF’s Digital Monetary Institute convened a panel discussion to explore what a retail CBDC public-private partnership would look like and how this would shape banks’ business models.

The panel included Hanna Armelius (Riksbank), Henny Arslenian (PWC), David Birch, and me. We discussed the potential division of labour between central banks, commercial banks and technology companies, and assessed how non-bank providers’ participation in a CBDC roll-out could impact traditional banks’ strategy and operations, as well as wider implications for global banks if digital currency is adopted for cross-border payments.

Tellingly, at the start of the seminar 78% of the audience thought the benefits of CBDC would outweigh the risks posed to the commercial banking sector, but this had dropped to 61% by the end of the webinar.

The consensus view among panelists was that central banks could distribute digital currencies through banks, in a public-private partnership not unlike the way the distribution of physical cash is organised. This would be a less disruptive scenario for banks and for the financial system more broadly, although availability of deposits would remain an issue for the supply and pricing of credit to businesses and households. While preserving banks should never be a policy goal, preserving financial stability while introducing CBDC should be. This does not mean a no-go for CBDC but does imply a reality check, and a warning to proceed carefully.

 Sources: ING THINK, OMFIF DMI, video registration. 

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