Mastercard Executive Considers Challenges/Opportunities of CBDCs

Ashok Venkateswaran, Mastercard's blockchain and digital assets lead for Asia-Pacific, has expressed skepticism about the widespread adoption of central bank digital currencies (CBDCs) at the recently held Singapore FinTech Festival. Notably, Venkateswaran emphasized that the primary hurdle lies in the difficulty of convincing consumers to shift from traditional forms of money to CBDCs.

"The difficult part is adoption. So if you have CBDCs in your wallet, you should have the ability to spend them anywhere you want—very similar to cash today," Venkateswaran explained. He also highlighted the crucial aspect of CBDCs being readily spendable in various transactions, akin to physical cash, for them to gain widespread acceptance among users.

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CBDCs exist in two primary forms: retail CBDCs and wholesale CBDCs. Retail CBDCs are the digital representation of fiat currency that central banks issue and target people and businesses for regular transactions. In contrast, wholesale CBDCs are reserved for use by central banks, commercial banks, and financial institutions for settling large-value interbank transactions.

While the International Monetary Fund (IMF) has touted CBDCs as a "safe and low-cost alternative" to cash, only 11 countries have adopted them, with 53 in advanced planning stages and 46 actively researching the concept as of June, according to the Atlantic Council.

Venkateswaran acknowledged the innovation happening in collaboration between central banks and private companies to build the necessary infrastructure for CBDCs. However, he pointed out that consumers are currently comfortable with traditional forms of money, leading to insufficient justification for the widespread adoption of CBDCs.

In the context of Mastercard's efforts, Venkateswaran mentioned the completion of testing its solution in Hong Kong's CBDC pilot program, focusing on simulating the use of a retail CBDC like electronic Hong Kong dollars. The pilot involved 16 companies across financial, payments, and technology sectors, including Mastercard's rival Visa, HSBC Bank, and Hang Seng Bank.

Venkateswaran cited Singapore as an example where the case for retail CBDC is less compelling due to the city-state's highly efficient payments system. He noted that Singapore and Thailand had made quick progress by connecting fast payment systems, reducing transaction fees for cross-border payments.

While acknowledging the potential of CBDCs, Venkateswaran emphasized that their success depends on the specific needs of each country. He stated that CBDCs might not be effective if they are merely attempting to replace existing domestic payment networks. However, in countries where the domestic payment network is less robust, CBDCs could offer a compelling solution.

Venkateswaran's insights reflect the delicate balance between technological innovation and consumer adoption in the evolving landscape of digital currencies, underscoring the need for clear use cases and benefits to drive the widespread acceptance of CBDCs.