While arguing that central bank digital currencies can improve the global financial system, three experts at Saturday’s MIT Bitcoin Expo 2020 suggested that it’s not yet clear that blockchain technology is the best option for digitizing central bank-issued currency, The Block reports. According to those experts, cryptocurrencies have certain drawbacks that would need to overcome to make them the clear choice.
The three experts involved in the panel discussion included Robleh Ali from the MIT Digital Currency Initiative, the Federal Reserve Bank of Boston’s Bob Bench, and Sonja Davidovic from the International Monetary Fund. They all cited problems with privacy, the reliable transfer of value, and interoperability as reasons why cryptocurrencies may not yet be the best option for CBDCs.
Davidovic noted that there’s been a tendency to latch onto new technologies due to hype:
"That certainly happened with blockchain. The result of that is that we've seen central banks that are directly engaging with it without going through the proper process of testing the technology in a proof of concept, selecting vendors through an open bidding process, and having a request for proposals."
She suggested that any central bank digital currency would almost certainly not be a “straight copy” of cryptocurrency, noting that central banks would need to outsource such projects to commercial vendors, which would increase the security risks for their systems.
Bench focused on issues related to reliability, particularly any blockchain-based cryptocurrency’s ability to consistently transfer large volumes of value. He noted that the many “moving pieces” involved in any CBDC system would create new vulnerabilities and opportunities for the system to break down:
"[DLT] might work, but what if you get to the 10 or 30 trillion volume and pieces start falling off the shelf? That's something that any central bank that's thinking about putting their full faith and trust of their government's currency behind a platform needs to understand."
Meanwhile, Ali suggested that any central bank digital currency will probably end up being a hybrid, combining the best elements of the current system with the new distributed ledger technology.
In the end, though, all three agreed that digital money will be vital for improving financial access and stability for consumers around the world.