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Wednesday, February 9, 2022

UK, US trade associations lean in to CBDC

Recent position papers published separately by The Payments Association and the Electronic Transactions Association reflect growing interest in central bank digital currencies (CBDCs) and financial inclusion.

A New Era for Money, published Feb. 9, 2022, by The Payments Association, is the latest in a series on the development and potential impact of CBDCs. The UK-based association's green paper, co-written with paywithglass and Boston Consulting Group, is part of Project New Era, an initiative designed to further discussions on these topics in public and private sectors.

An ETA study, Industry Insights: Creating a More Inclusive Economy: How Fintech Advances Digital Resources for Underserved Communities," published Feb. 7, 2022, highlighted numerous efforts by payments industry stakeholders to serve marginalized communities, ensuring no consumers are left behind as digital money scales.

Principled CBDC

Jodie Kelley, CEO at the ETA, supports efforts to create a U.S. CBCD, noting the Federal Reserve Board's position paper, published Jan. 20, 2022, aligns with the association's seven guiding principles aimed at improving the existing payments system. "We look forward to continuing to work with policymakers on the possible creation of a CBDC," she said, citing the following seven principles:

  1. Advances innovation
  2. Provides the right tool for the job
  3. Ensures private sector participation
  4. Allows for interoperability
  5. Encourages open acceptance
  6. Strengthens consumer protection
  7. Utilizes regulation tailored to the risk profile of the participant

Tony Craddock, director general at The Payments Association, commended the ETA on its guiding principles, calling them sound and sensible. "An approach that focusses on innovation, relevance and drawing in the private sector to help cannot be challenged," he said. "Nor can one that is built on an open, interoperable philosophy that has consumer protection at its core with regulation tailored for the risk profile of the user."

Common themes

Craddock pointed out that Project New Era, a consortium of fintechs led by paywithglass, also has common themes, which he summarized as follows:

"The underlying design of the CBDC is critical to its likely success and widespread adoption, and such design can only come from a public-private collaboration. Secondly, this design work has to be done in the field, not the studio, and so we are running a set of real-world pilots to test-and-learn, and use real data to inform policy and regulations. 

"Next, while we agree with the ETA's suggestion that a new approach must be compatible with legacy systems, it cannot be built upon them. As a result, we are building a fresh technology stack based on best practice and the latest technologies from members of the Digital FMI Consortium, founded on the five years of experience at paywithglass.

"And finally, no current institution is equipped to do this work, unfettered by politics, legacy mindsets or [organizational] silos. For this reason, we are developing a blueprint for a new, community-run Digital Financial Markets Infrastructure (Digital FMI), as an open and transparent entity that will be responsible for operating the pilots."

Craddock went on to say that the Digital FMI may eventually sit alongside more established entities providing CBDC-related capabilities in the UK or may even become the UK's main provider of CDBC capabilities. The Payments Association will explore these concepts in a Feb. 17, 2022 webinar, he added.

Financial inclusion

As Craddock and Kelley both noted, COVID-19 accelerated digital commerce and mobile wallet usage in the past two years, but some segments prefer cash to alternative payment methods. Efforts are underway in both countries to promote financial inclusion for all consumers.

Project New Era researchers suggested central banks can create an inclusive road map through public-private sector collaboration. "Over the long term, there is clear potential for a CBDC—with the right design—to power a new financial services ecosystem that privately issued alternatives could otherwise fulfil," they wrote. "Although further fragmentation of payment methods in the market is likely, coexistence and seamless interoperability between all forms of money could increase consumer choice whilst maintaining financial stability."

Scott Talbott, ETA senior vice president, government affairs, expressed the ETA's support of public and private sector collaboration. "ETA applauds bringing together the central bank with payments and banking experts to create a CBDC," he said. "Any CBDC must be interoperable with the existing payments system to ensure wide acceptance and consumer protection."

Talbott also referenced ETA members' tech-driven initiatives designed to foster innovation and inclusivity, such as open finance, prepaid products, nontraditional payments, ADA-compliant mobile banking and payments, peer-to-peer payments, cross-border payments, online lending, interactive ATMs, expanded internet access, and financial literacy and readiness.

The ETA's white paper, Industry Insights: Creating a More Inclusive Economy: How Fintech Advances Digital Resources for Underserved Communities, is available at www.electran.org/wp-content/uploads/ETA-Creating-a-More-Inclusive-Economy-2022-1.pdf.

The Payments Association's green paper is available at: thepaymentsassociation.org/consultations/a-new-era-for-money/?utm_source=Media&utm_medium=Press+release&utm_campaign=Green+Paper+launch

To register for The Payments Association's Feb. 17 webinar on the green paper, visit: epa.glueup.com/event/47791/register/  end of article

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