CBDCs: The promise of low cost, frictionless banking, comes with risks

Ripple Rolling out propriety platform
CBDCs: The promise of low cost, frictionless banking, comes with risks

The UAE and Saudi are well on their way to introducing their respective e-currencies following ongoing research and testing of respective Central Bank Digital Currency (CBDC) plans.

The UAE expects to complete the first phase of its CBDC in the middle of next year, according to the country’s Central Bank CBUAE. The bank revealed having G42 Cloud and New York-based blockchain firm R3 as the infrastructure and technology providers, respectively.

The first phase of the Digital Dirham (e-Dirham) and the soft launch of the ongoing project mBridge will be a collaboration between the Bank for International Settlements (BIS) and the central banks of Hong Kong, the UAE, and Thailand, an ongoing study for cross-border payments and multi-CBDC transactions.

This will be followed by a proof-of-concept work for a bilateral CBDC bridge with India and a proof-of-concept work for a domestic wholesale and retail CBDC, improving cashless transactions across all sectors of the economy.

Read: UMU Unicoin: A stablecoin or early global CBDC salvo? 

As blockchain tech is based on a peer-to-peer (P2P) network system, all transactions through this new e-dirham will be near real-time, offering low blockchain without overhead costs from third parties.

The UAE CBDC will increase financial inclusiveness where, according to Mastercard, Around 1.7 million people in the country are unbanked.

Meanwhile, Saudi Central Bank (SAMA) is still doing research into releasing national CBDCs but is yet to announce a deployment.

In a January 23, 2023 release, SAMA said it was working on a phase of a project that “focuses on domestic wholesale CBDC use cases in collaboration with local banks and fintechs.”

However globally, experts argue that CBDCs come with a major inherent risk.

Potential government abuse

According to stakeholders considering the matter at Consensus 2023, a meeting between developers, investors, founders, policymakers, brands, and others aimed at finding solutions to crypto’s thorniest challenges, government abuse threatens to overshadow the potential economic paybacks of adopting CBDCs.

They argued that governments can’t be trusted to build public digital currencies without the risk of using them to conduct surveillance on their citizens.

Out of nearly 170 participants who answered an electronic survey during the three-day April conference, only 9% answered that it was definitely possible to design and build a surveillance-free government-backed digital currency.

But nearly 40% believed that surveillance was technically feasible and worried governments wouldn’t allow digital currencies to operate with a guarantee of privacy.


Ripple rolls out propriety CBDC platform

Blockchain payments-focused firm Ripple is rolling out a proprietary platform for CBDCs geared towards enabling central banks, governments, and financial institutions to create their own digital currencies and overcome many of the issues they run into while doing that.

The platform will enable instant settlement of both domestic and cross-border payments and enhance user experiences of quickly sending and receiving digital currency on either side of a transaction.

Described as “a frictionless end-to-end solution,” the Ripple CBDC platform is based on the same blockchain technology as the XRP Ledger (XRPL) also designed primarily for payments.​

A survey recently conducted by the Bank for International Settlements showed that over 80% of the world’s central banks are already looking into CBDCs. Over 90% of countries exploring, developing and implementing CBDCs as a way to increase financial inclusion and lower the cost and risk of domestic and cross-border payment processes.

According to Ripple, the new platform enables government institutions to customize every aspect of the CBDC’s lifecycle. End users for both corporate and retail will be able to securely store their digital currencies and use them for purchasing goods and services.

The firm is also working with Taiwan’s Fubon Bank to develop a product for tokenizing real estate assets and facilitating equity distribution within the framework.

The Ripple CBDC platform offers customers a new private ledger technology, enabling issuers to manage the full lifecycle of their fiat-based digital currency, from minting and distribution all the way to redemption and destruction. Users of such digital currencies, including corporate and retail end users, will be able to securely hold, pay and receive payment for goods and services, including for offline transactions and non-smartphone use cases.

Ripple’s CBDC solutions were recently top-ranked by Juniper Research in their competitive leaderboard in a field of 15 CBDC technology providers. Ripple’s CBDC solutions were also top-ranked in CB Insights’ Best Blockchain Cross-Border Payments & CBDCs Companies.

For more on CBDCs, click here.

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