Imagine a cross-border central bank digital currency that enables cheap instant payments – in more than one currency. These are CBDCs.
South Africa, Singapore, Malaysia and Australia plan to launch such a system soon. They’ve even dubbed the new experiment “Project Dunbar,” which launches this week under the auspices of the Bank for International Settlements.
If the idea works – a big if – then this project will revolutionize digital finance in these countries, if not the world.
However, building and testing CBDCs is not a new concept.
The Bahamas has tried and tested domestic CBDCs. Switzerland and the Monetary Authority of Singapore have tested domestic and cross-border CBDC systems in one currency. However, none of these systems have tested CBDCs with multiple currencies.
This is what makes Dunbar unique.
Why CBDCs initiatives are interesting
A CBDC system works by linking different silos and currencies. That’s Dunbar’s selling point – and Holy Grail.
But China, Thailand and the United Arab Emirates want to “overthrow” the Dunbar initiative by launching their purported mCBDC project, which uses similar technology.
Below we try to explain why these initiatives are interesting:
First of all, these experiments show that cryptocurrencies are now “in” and have become mainstream. To back up this truism, the US Federal Reserve is expected to soon report on its efforts to create a (domestic) dollar central bank.
Second, the fact that more and more central banks (around the world) are jumping into these experiments is evidence of the emerging power struggles in the corridors of finance.
They are even vying to create the most secure digital coins – which is what the explosive growth of Ethereum, Cardano, Solana and other, less well-known digital assets.
Third, Asia is leading many of these experiments. China is a case in point: the country is currently developing a digital yuan to strengthen its global financial dominance. The central banks of Hong Kong and Singapore are also very active in this regard.
Finally, these initiatives will not directly affect cryptocurrencies. Why, in fact. Because CBDCs are not an effective form of money. Mobile phone banking, credit cards and paper money are still faster.
Dunbar will raise financial expectations
If there is a system that can raise financial expectations, i.e. enable fast, instant and cheap payments, it is welcome.
Dunbar seems like a “perfect” experiment that promises to drastically lower the cost of cross-border remittances and more. All we can do is wait and see.
That said, we should all celebrate when systems like CBDC’s can shake up sleepy financial cartels. Competition is healthy, right? It spurs innovation.