Inaugural Digital Currency Conference

The Digital Currency Conference (DCC) took place in person immediately after the Banknote & Currency Conference in February.

Although CBDCs took centre stage, all digital currencies were included in the programme, starting with the fact that although it cost $6.5 million for a 30 second advertisement in the Superbowl breaks, the bitcoin exchange advertisers more than recouped their investment. On the other hand, $4.5 billion is reported to have been laundered in bitcoin in New York.

The agenda raced through a wide range of topics, including:

• Quantum computing – not there yet but real potential. Will probably get there this decade. Part of the constant race to get ahead to make things secure.

• Achieving privacy and risk and security with CBDCs – all seven launched CBDCs have adopted a two-tier approach, ie. commercial parties handle the distribution and circulation of CBDCs, including taking responsibility for regulatory compliance associated with Know Your Customer legislation etc.

To secure privacy, the discussion centred on the use of multi-tier transaction limits allowing anonymity below a certain value, pseudo anonymous data being made available for view without a court order and basing CBDCs on a voucher concept to allow a degree of disconnect between the individual and their data.

• Thoughts on the Digital Dollar Project – with a 22 question consultation in play, Project Hamilton is a mixture of technical research and an exploration of policy questions. Although it is an opensource blockchain solution, the Federal Reserve does not rule out other private solutions. In terms of security, safety and resilience at scale are prerequisites for a world currency such as the dollar. Key policy questions include achieving security in the areas of interoperability and programmability.

• Digital currencies – the goals of digital currencies, including CBDCs, are to maintain economic stability while reducing the cost of payments, increasing efficiencies, achieving broader accessibility to the financial and payment system and to create new market opportunities.

One view was that asset-based tokens were viable commercial digital currencies to deliver these objectives. Stablecoins such as Tether, were accessible for the general public and merchants, while for financial institutions products such as JP Morgan’s, JPM Coin was designed for their needs. CBDCs being the government equivalent.

A further session went on to look at the tax policy implications of cryptocurrencies in particular.

• Key themes around CBDCs – managing diversification of payment options, settlement of payments end to end in financial market structures, improved payment functionality, particularly for cross border payments, working out how CBDCs, electronic payments and cash will co-exist and turning the potential of programmability into a reality.

Last word

Aaron Klein of the Brookings Institution finished with a charismatic and persuasive presentation examining how access to digital money and digital payments has emerged as a dividing line, changing the ability to access and reap the benefits from the new e-economy.

During the course of his talk he robustly questioned whether the benefits suggested for CBDCs can’t be delivered by existing or alternative solutions. Even facilitating ‘atomic’ settlement, the instant exchange of two assets whereby the transfer of one asset occurs if and only if the transfer of the other asset also occurs, is not unique to CBDC.