This article originally appeared in Fintech Futures on July 11, 2022.
As more governments consider launching a central bank digital currency, they face many important questions: Why create a digital dollar, euro, or rupee? What technology best fits that purpose? How might a CBDC affect competition in the market? Policymakers also need to think about another vital question: How to engage the private sector to partner in the project?
Private enterprises will be critical to the success of CBDCs, especially ones intended for retail use, we show in a joint research paper with Amazon Web Services. They have the technological expertise to help design, build, and manage a new digital currency, whether in partnership with the central bank or on an outsourced basis. Private firms also have ongoing connection to businesses and consumers to deliver CBDC services effectively and innovate in response to market signals.
To get the full benefits of that expertise, central banks should give the private sector an early seat at the table when evaluating technology design choices. Private enterprises can provide valuable insight into the kind of incentives and business models that can foster innovation and competition in financial services and ensure the system’s maintenance, resilience, and continued enhancement. Central banks can help by providing as much clarity as possible about the requirements firms may face.
Read the full article in Fintech Futures.