[Read more session reports from the WSIS Forum 2018]
Session 304 of the WSIS Forum discussed challenges facing central banks in issuing digital currency. The panellists gave an overview of digital fiat currency, and raised some of the interoperability, policy, and regulatory and security challenges being investigated by central banks.
Moderator Mr Vijay Mauree, programme coordinator with the Policy and Technology Watch Division of the Telecommunications Standardisation Bureau (TSB) of the International Communication Union (ITU) listed some of the questions currently being explored by central banks:
- What are the differences between central bank-issued currency and private currency?
- What is going to be the impact of digital currency in the future?
- How will digital currency integrate or become interoperable with existing payment systems?
Dr Daniel Reiss, from the Committee on Payments and Market Infrastructures at the Bank for International Settlement (CPMI), gave an overview of central bank-issued digital currencies (CBDC). Reiss indicated that as a result of the history of bitcoin, discussions are currently taking place to determine how to apply the original architecture of digital currency to other issues. That is, how to make use of the distributed ledger in the monetary system and how will this innovation be introduced into the monetary system.
Reiss went on to highlight the following reports published by CPMI as key resources for understanding the payment systems and issues related to digital currency:
- Principles for Financial Market Infrastructures 2012
- Digital currencies report 2015 CPMI
- DLT in payment clearing and settlement 2017
- 2018 Money in the digital age, what role for central banks
- 2018 Central Bank Digital Currency
He described CBDC as sovereign currency backed by the monetary authority and noted that there are other forms of digital currency being used today including cards and mobile money.
Reiss indicated that payments among financial institutions are already digital and noted that the challenge being discussed is how CBDC can be used to make the system more efficient and more resilient.
He concluded by saying that there are several questions which still need addressing including whether central banks should provide accounts to individuals, and whether the central bank is the regulator or the supplier? He also asked how CBDC will affect credit and other aspects of monetary policy?
Dr Klaus Loeber, from the European Central Bank discussed the risks and implications of CBDC, remarking that innovations in money have moved from placing a stamp on a piece of metal, to using paper, and now digital money.
He noted several issues relating to CBDC which still need exploring, for example, economic issues such as the impact of CBDC on banks’ current business models, regulatory issues such as who should issue digital currency, and compliance issues. He also mentioned legal issues such as what it actually means to own digital currency, and what happens if one uses digital currency in a cross-border domain.
Loeber closed by advising that CBDC could bring benefits but there are several aspects that need to be fully discussed. He further advised central banks not to rush, but to reflect very carefully on what CBDC means to them in the execution of their functions.
Dr David Wen, chairman with the ITU’s Telecommunication Standardization Sector (ITU-T) focus group on Digital Currency, in discussing digital fiat currencies, indicated that money has changed its form because of changes in communication technology. He advised that banks should ‘Go slow, but we have to go’.
Wen noted that history is repeating itself and said that money has an old function that has been with us for a long time: the function has not changed, it is the form of money that has changed.
He compared the 18th century with contemporary times in their treatment of money. In the 18th century, gold was the store of value and was not easily transported. Private companies printed their own currency to the extent that some 700 forms of paper money were in circulation. This presented problems of governance, interoperability and security. Some of the questions included whether currency printed by one store could be used at another store, what would happen to currency printed by the train company if the train company went out of business, and how secure was the currency - could it be counterfeited?
Wen noted that today paper currency cannot be moved remotely so technology has been used to solve that problem by creating electronic money. However, the same issues of governance, interoperability, and security persist. Wen said that the work of the focus group looks at how to develop a digital currency that satisfies the governance, interoperability, and security concerns .
Dr Bruno Huttner, QKD Expert with ID Quantique, presented on threats to blockchain technology and digital currencies that can emerge from quantum computing. Bruno prefaced his presentation by saying that blockchain technology and digital currencies are only as secure as they are today because of the cryptography being used. This cryptography is based on classical computing and its treatment of binary calculations with two discrete states, true or false. With the emergence of quantum computing within the next 10 to 15 years, existing cryptography routines may be compromised.
Quantum computing can generate a large number of outcomes in a relatively short time, and as a result it is quite possible for quantum computers to bypass the existing security which underpins blockchain and digital currencies.
Huttner advised central banks to design their systems in such a way that they are not tied to one cryptographic approach. That way when quantum cryptography becomes available their systems will be able to adapt.
The final presenter, Mr Paul Neubecker, co-founder, HX Foundation and Hybrid Network, discussed differences and similarities between CBDCs and blockchain.
A question was asked by remote participant Mr Arvin Kamberi from DiploFoundation about how different it is to implement policies such as Know Your Customer (KYC)/Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) on crypto currencies compared to cash.
Loeber responded that there was a lot of myth around modern technology; he further noted that the performance of anti-money laundering checks is enhanced in a cryptocurrency environment
The moderator then summarised the session by saying that there was a lot of work being done and several issues are being discussed at the level of the regulator. He closed by noting that there are many threats and many solutions being proposed.
By Trevor Phipps