The head of VISA’s Crypto department, Cuy Sheffield, argues that central banks may not release their digital currency to consumers.
He has published his thoughts in 14 tweets in which he attempts to answer the question of how central banks want consumers to perceive the value proposition of a CBDC (Central Bank Digital Currency).
Sheffield proposes two different answers to this question:
- product or brand aimed at the consumer, such as cash.
- fintech payment infrastructure or back-end bank such as real-time payment rails (RTP).
At this point, he reveals that CBDCs are commonly regarded as ‘digital cash’, i.e. a direct central bank liability that consumers and businesses can hold as they do today with physical cash, as opposed to ‘digital deposits’ which are liabilities of commercial banks.
After all, cash is an extremely successful financial product, aimed primarily at consumers, which central banks offer as a physical representation of money that provides confidence, anonymity, offline payments and immediate settlement.
Sheffield, however, also points out that most consumers probably know that cash comes from a bank, but they do not understand the difference between a central bank and a commercial bank, and when they withdraw cash from an ATM, for example, they convert a promise from their commercial bank into a promise from the central bank.
At this point, the question Sheffield asks is:
“If a central bank issues “digital cash,” how do they explain to mainstream consumers how CBDC is different from the digital deposits they hold at commercial banks today?”
Indeed, if a CBDC would not allow a consumer to do something different from what they could do with a common payment app linked to their digital deposit at a commercial bank, explaining the difference would be particularly difficult, if not realistically impossible.
In other words, a CBDC would risk competing directly with commercial banks by moving their account holders’ deposits into proprietary digital wallets.
At this point, Sheffield suggests that CBDCs could only be an infrastructure based on digital wallets issued by fintech companies, allowing consumers and businesses to hold and trade a central bank liability both inside and outside the country of issuance.
In other words, the central bank would market only the infrastructure, whereas wallets would be issued by commercial banks or similar.
For example, the Chinese digital currency, which is already being tested in the field, seems to be based on this very dichotomy. As a result, consumers would have no direct relationship with the central bank, but only with the fintech wallet, which they would choose on the basis of the brand and technical characteristics of the wallet itself, rather than on the characteristics and structure of the underlying money on which it will be based.
Sheffield then concludes by saying:
“If a central bank decides to offer a digital wallet directly to consumers then by default CBDC and the central bank would have to become a household brand but this approach seems unlikely to be taken seriously by most major central banks due to operational challenges”.
It is worth mentioning that VISA is probably already working on something like this, and could, therefore, be one of the leading companies in the world in the issuance of a fintech wallet like the one imagined by Sheffield.
The fact that Sheffield is the head of VISA’s cryptocurrency division makes this scenario even more likely, and given that in China it seems that the digital currency appears to be developing like this, it is plausible to imagine that this dichotomy will be the underlying feature of Western digital currencies too.