Central banks could use digital currencies if distributed ledger technology (DLT) is improved. According to a new IBM research report, a central bank digital currency (CBDC) could be backed by these financial institutions. However, there are some questions on whether DLT would be capable of providing all the necessary efficiency upgrades.
Central Banks Could Back CBDC
As per the report released by IBM on Friday, central banks could be in favour of a CBDC. The study has been conducted by IBM and OMFIF, an independent central bank think tank. Both institutions examined the opinion of 21 different central banks between July and September.
The results show that 38 per cent of these central banks are already testing CBDCs for inter-bank transactions. Although most of these banks did not invest in virtual currencies, most of them would be open to testing CBDCs. Furthermore, the document says that CBDCs could reduce credit risk if they are linked to a ‘stable’ fiat currency.
However, in order for the technology to be embraced, DLT would have to be improved. The banks that tested blockchain solutions did not experience a significant increase in efficiency.
The report reads as follows:
“61% of the central banks said a blockchain may not be necessary as they observed few efficiency gains during trials, given the technology is still in early stages of development.”
Additionally, most of the respondents (76%), said that is not clear whether DLT will be able to deliver its promise. In some specific areas, DLT will have to be compliant and regulated.
“Central banks concluded that blockchain systems must improve before they can overcome issues of scalability and speed,” concludes the report.
There are different central banks that are interested in CBDC. As we reported at UseTheBitcoin, Sweden could launch a CBDC known as e-Krona. This digital currency would be the equivalent to the country’s regular currency. Additionally, it would be backed by IOTA’s technology.
In Norway, the situation looks very similar. Norges Bank – Norway’s central bank – released a document in which they express their intention to develop a CBDC. This currency would be used as a medium of exchange.
Additionally, the United Kingdom could also be close to launching a CBDC. According to reports from the beginning of this year, the Bank of England could release a digital currency in the near future. However, there is no recent information on this matter.
Other countries interested in CBDC are Ukraine and Canada. They are also evaluating the possibility to issue these virtual currencies in the future.
Carlos is an international relations’ analyst specializing in cryptocurrencies and blockchain technology. Since 2017, Carlos has written extensively for UseTheBitcoin and other leading cryptocurrency sites; with over 2,000 articles published.