Today during the SIBOS banking conference, the European Central Bank‘s (ECB) Ulrich Bindseil said Bitcoin as an efficient payment instrument was an illusion and painted a picture of what a central bank digital currency (CBDC) might look like in five years. Meanwhile, the Hong Kong Monetary Authority (HKMA) wouldn’t specify a timeline but hinted that it could be as soon as three years.
During the panel talk, Bindseil, the Director General of Market Infrastructure and Payments, had earlier said a key reason that cross border payments have not progressed despite technological advances was in part due to banks’ de-risking.
He moved on to Bitcoin and its “illusion” of efficient cross border payments because of a lack of compliance.
“The fact that it (Bitcoin) seems competitive in cross border payments is just due to regulatory arbitrage and is not sustainable. Of course, the public sector should look at this and close this regulatory arbitrage gap as quickly as possible. And then also this illusion of Bitcoin as an efficient way for cross border payment will quickly go away for sure,” said Bindseil.
HSBC’s Georges Elhedery, who is co-CEO of Banking and Markets, also urged action. “Decentralized finance is a reality. It’s happening out there,” said Elhedery. “We as a regulated entity have no intention to be operating in a totally unregulated space. Therefore we do call our central bank and our regulators to consider ensuring that these stablecoins and other kind of crypto are regulated commensurate to the risks they pose.” And he proceeded to rattle off a long list of risks.
Meanwhile, the ECB Director General moved on to global stablecoins, saying the reason for the slowdown in their deployment is because they too are “facing regulatory realities which have been applicable to banks and other service providers for a long time.”
When talking about a potential central bank digital currency (CBDC), the ECB’s Bindseil was keen to manage expectations. Initially, he referenced a five to six-year timescale after which the application would likely purely be domestic retail payments.
“Other things like programmable payments, offline payment, cross border payments, international interoperability, those are all things we should keep in mind now, prepare to have them eventually in scope. We will see,” said Bindseil.
“But we cannot, I think, load everything and say in five years time also we will solve cross border payment issues necessarily with a CBDC. It’s a bit more of a medium term objective.”
Howard Lee, Deputy CEO of the HKMA, also discussed CBDCs. “You don’t know if it’s three years down the road, five years down the road, or further down the road. But this is something that no-one can really ignore,” said Lee.
Emphasizing it his personal opinion, Lee sees the most scope for a wholesale CBDC, which would enable payment versus payment (PvP) transactions to settle digital assets. In his view, this would drive financial innovation. Lee also highlighted that work was ongoing with the BIS on both the wholesale and retail CBDC fronts.
While Lee didn’t go into details, Hong Kong is part of the m-CBDC Bridge wholesale project that started with Thailand and Hong Kong and now includes the BIS, China and the UAE. There are plans for the stock exchanges of Hong Kong and Thailand as well as 30 commercial banks to participate in the trials.