On bankunderground, Simon Scorer reminds us that a central bank issued digital currency (CBDC) need not operate on a distributed ledger platform. The two do not have much to do with each other.
Scorer suggests a series of technical requirements for a CBDC:
And he concludes that a distributed ledger does not meet all requirements.
It’s unlikely that all of the above attributes could be perfectly met with today’s technology; you may need to make compromises between features – e.g. the trade-off between resilience and privacy …
CBDC is far from just a simple question of technology; any central bank contemplating CBDC will need to answer a host of fundamental economic questions, as well as considering how feasible it is to achieve all the required features and what type of technology might enable this.
is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference.
These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.
In the FT, Martin Arnold summarizes a McKinsey study on banking. Arnold entitles his article “McKinsey warns banks face wipeout in some financial services.”
According to the report, competition arises from technology companies that deliver specific financial services at much lower cost.
McKinsey said technological competition would reduce profits from non-mortgage retail lending, such as credit cards and car loans, by 60 per cent and revenues by 40 per cent over the next decade. … It predicted a smaller, but still significant, chunk of profits and revenues would be lost from payments processing, small and medium-sized enterprise lending, wealth management and mortgages. These would decline between 35 and 10 per cent, McKinsey said.
In a series of articles, The Economist reports about technology companies that compete with traditional banks in areas ranging from lending to payments and wealth management.
The introductory article refers to AngelList and references reports by Goldman Sachs (The Future of Finance, copy posted here), BCG and Accenture. And it highlights two factors driving the structural change which I have also emphasized in a recent article: Technology and vanishing trust in banks. The other articles cover: