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BIS urges central banks to move fast on CBDC as Visa stablecoin threat looms

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The Bank for International Settlements (BIS) is concerned about the threat that a
stablecoin by Visa (NASDAQ: V) or Mastercard (NASDAQ: MA) could pose to the role of central banks in the monetary system.

BIS General Manager Agustín Carstens was a keynote speaker at the Bank of Korea’s (BOK) Future Monetary System Seminar on Thursday, where he spoke about the advancements in payments over the years and why tokenization would be the foundation of the payment system in the digital era.

Carstens followed his speech with a fireside chat with BOK Governor Chang Yong Rhee. The two discussed the role of central bank digital currencies (CBDCs) in the monetary system and the threat of stablecoins.

The threat of a Visa/Mastercard stablecoin

Rhee expressed concern about the PayPal (NASDAQ: PYPL) stablecoin that launched in August. The governor pointed out that despite having objections to PUSD, U.S. regulators “couldn’t say no.” And while PUSD was a significant addition to the stablecoin pool, its threat pales in comparison to what a potential Visa or Mastercard stablecoin could have.

Carstens shares the concerns, he said.

“I think the fact that PayPal, Visa, Mastercard, these big names, a parallel system of stablecoins could be generated that compete with sovereign currencies, is a concern,” he told the audience.

The best defense against such a landmark event is for central banks to move fast with their own CBDC efforts, he believes.

“And therefore, I think that behooves authorities to move as fast as possible, given the constraints they face. I share your sense of urgency.”

Visa and Mastercard dominate global card payments and have the largest network of any financial institution. Last year, Visa processed 242 billion transactions, or roughly 660 million transactions daily, accounting for four out of 10 card transactions. Mastercard processed 150 billion transactions.

The two companies have been making inroads into the stablecoin world. Visa became the first major mainstream payment network to settle stablecoin transactions in 2020 with USD Coin. It has been expanding its network since to include more stablecoins on a growing number of blockchain networks.

Mastercard followed Visa into stablecoin exploration shortly after. Earlier this year, it partnered with Australian platform Stables to expand its stablecoin capabilities to the Asia-Pacific region. Users can spend their stablecoins on any merchant that accepts Mastercard.

The two payment giants have a significant advantage over central banks—they can move quickly on new products. Central banks are notoriously slow in adopting new technology, as evidenced by the delay in CBDC development.

So far, only a handful of small economies have launched their CBDCs. Of these, Nigeria is the largest economy with a $440 billion GDP. China is the most advanced among the major economies, but it has been stuck on its pilots for years now.

In his speech, Carstens talked about the future monetary system and the need for a unified ledger that would combine central and commercial bank money with other assets. This unified ledger will rely on programmable money, digital assets, and a digital infrastructure that supports their operation.

“And for all these three components to work together, the key step is tokenization. Tokenization is a means of recording money and assets in a digital form on a programmable ledger,” he stated.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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