Ripple Insights: The Growing Role of CBDCs in Global Banking
According to Ripple, the convergence of blockchain technology and the decline in global cash usage have accelerated the research and development of Central Bank Digital Currencies (CBDCs).
In a blog post published on 19 September 2023, Ripple cites that nine out of ten central banks are currently investigating the potential of CBDCs. Furthermore, Juniper Research forecasts that CBDC payments will soar to $213 billion by 2030, a sentiment echoed in Ripple’s New Value Report.
Ripple’s New Value Report reveals that over 90% of surveyed financial leaders believe digital assets like CBDCs will substantially impact business, finance, and society within the next three years. Additionally, Ripple notes that more than 80% of these leaders will likely integrate crypto, stablecoins, or CBDCs into their operations soon.
Global Adoption on the Rise
As of June 2023, Ripple states that more than 114 countries, accounting for over 95% of the world’s GDP, are at different stages of CBDC exploration. According to the Atlantic Council, 11 countries have fully launched their digital currencies, and 20 more are expected to initiate significant CBDC pilots this year. Ripple highlights China’s leadership in this domain, with over $3.6 billion in monthly digital yuan transactions. Smaller nations like Palau are also examining how digital currencies can support sustainability and financial inclusion.
Expanding Government Use Cases
According to Ripple, the incentives for developing CBDCs vary but generally aim to enhance efficiency in both domestic and international payments. Ripple suggests that CBDCs can expedite transaction processing and offer instant transfers, which are crucial for global trade. Ripple also mentions that CBDCs can broaden financial inclusion by offering easier access to payment and credit services. The inherent blockchain technology can further reduce transaction costs and eliminate fees from various intermediaries.
James Wallis, Ripple’s VP of CBDC, states that mid-sized economies are particularly well-positioned to benefit from CBDCs in terms of financial inclusion and cost-effective services. Ripple adds that as digital asset ownership grows globally—reaching 22% in India and 20% in Brazil—some central banks view CBDCs as a strategy to retain control over fiscal and monetary policies while future-proofing their economies.
Private Sector’s Role in Adoption
Ripple emphasizes the importance of commercial banks in driving CBDC adoption due to their intimate understanding of end-user needs. Wallis explains that while central banks can manage the core infrastructure, the private sector is instrumental in introducing new use cases that benefit the public. Commercial banks also play a key role in providing infrastructure for interbank settlements using wholesale CBDCs and enabling consumers to hold digital wallets for CBDC transactions.
Cybersecurity and Illicit Activity
Ripple points out that when CBDCs are designed with integrated privacy and cybersecurity measures, they can also help central banks better counter illicit activities, adding another layer of utility to these digital currencies.
The Inevitable Future of CBDCs
Ripple concludes that CBDCs are set to revolutionize the global banking system, backed by a consensus on their benefits like security, stability, and improved data management. According to Ripple, the only remaining question is not whether CBDCs will transform global finance, but when.
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