Visa(V) announced Thursday that it will expand its crypto services a step further by partnering with blockchain software company Consensys to build a ramp platform for central bank digital currencies (CBDC).
The payments giant aims to create a ‘CBDC Sandbox’, available in the spring, where central banks can experiment with distributing the technology after it has been minted on the Quorum Consensys protocol.
The partnership is the latest development in the booming cryptocurrency market, with central banks vying to mint their own digital currencies and well-established financial firms indulging in crypto payments.
“Central banks are moving from research to wanting a tangible product that they can try,” said Choi Sheffield, head of crypto at Visa.
CBDB can run either a distributed ledger or a protocol built with blockchain technology. Unlike cryptocurrencies such as Bitcoin (BTC-USD) or Ether (ETH-USD), CBDC protocols are always “licensed,” which means that central banks maintain monetary control and governance.
The partnership uses a “two-tiered” distribution model for central bank digital currencies. Central banks will design their digital currency based on a quorum of Consensys where they will set their monetary and governance rules. They then use Visa’s infrastructure to distribute the currency through financial intermediaries such as commercial banks.
Eswar Prasad, senior professor of trade policy at Cornell University and author of The Future of Money, explained to Yahoo Finance some of the advantages of the Visa-Consensys model. It doesn’t take payment providers out of the equation, and it can allow for competition over who can provide the most efficient and low-cost services.
Prasad said central banks would likely prefer to manage the payments infrastructure themselves.
However, he also noted that Visa’s approach is also noteworthy because it can “help maintain the relevance of its payment network amid rapid changes in the payment space that could undermine its business model.” Changes also include stablecoins and several fintech payment platforms.
Visa has been involved in crypto-related products since 2019, taking advantage of the existing payment network to build “ramps” to buy cryptocurrencies, and “external ramps” to convert them back into fiat currency.
It already settles transactions in a single stablecoin, and recently opened a cryptocurrency advisory service that caters to banks that are exploring their cryptocurrency plans.
The number of countries exploring digital central bank currencies has doubled in the past year and a half. According to the Atlantic Council’s CBDC tracking, at least 87 different countries – which account for 90% of global GDP – weigh fintech in some way.
However, progress and goals within that group were mixed. Nine central banks, including Nigeria, the Bahamas, and seven other Caribbean nations, have launched a central bank digital currency. Meanwhile, China is preparing to unveil a demo digital yuan for foreign visitors next month during the 2022 Winter Olympics.
Meanwhile, major central banks such as the Federal Reserve are not expected to issue digital currency anytime soon. During his reconfirmation session earlier this week, Federal Reserve Chairman Jerome Powell said the Fed’s long-awaited paper on central bank digital currencies would be released “in the coming weeks,” but he did not offer a firm timeline beyond that. .
“It’s an exercise in asking questions and seeking input from the audience, rather than taking positions on various issues, even though we do take some positions,” Powell said.
A senior executive at eCurrency, a company that has been advising the US Treasury and the Federal Reserve on central bank digital currencies for more than a decade, told Yahoo Finance in October that Congress must grant the mandate before the Fed and the US Treasury can issue central bank backing tokens. .
The use case for any CBDB is extensive. But based on conversations with central bank governors, Catherine Jo, Visa’s head of central banks, told Yahoo Finance two main reasons.
First, developing countries can use technology to provide greater financial access to unbanked populations. Second, the digital central bank currencies of developed countries provide more efficient distribution of stimulus relief in more targeted ways to boost the economy, such as giving money an expiration date, or allowing it to be used only for certain transactions.
However, there is an obstacle to user adoption and acceptance of central bank digital currencies. It hinges on the power that technology is likely to give central banks – and whether that poses a challenge to the primacy of monetary units like the US dollar, the world’s dominant reserve currency.
While digital central bank currencies can provide new tools for monetary policy, it is not clear how restrictions will be placed in democratic societies.
You also have this major issue that central banks have to address; What would the coexistence of a central bank digital currency look like and how it could be integrated into the existing financial system,” added Joe.
David Hollerith covers Yahoo Finance’s cryptocurrency. follow him Tweet embed.
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