On March 7, three monetary and cryptocurrency experts discussed the challenges and prospects of digital currencies issued by central banks at the Massachusetts Institute of Technology (MIT) Bitcoin Expo 2020.
The panel members acknowledged that distributed ledger technologies (DLT) could improve the existing global monetary system, but argued that major challenges still exist with regard to the privacy, interoperability and scalability of block chains.
Sonja Davidovic, economist at the International Monetary Fund (IMF), warned central banks not to hurry to implement blockchain systems without first checking the technology.
She said: “What we have seen a lot is that there is a hype and people are moving quickly to choose that technology just because it is popular.”
“That certainly happened with blockchain. As a result, we have seen that central banks are directly involved without going through the right process to test the technology in a proof of concept, selecting suppliers through an open bidding process and having a proposal to submit proposals received. “
Despite a range of distributed systems available to central banks, Davidovic claims that no robust privacy and interoperability has been demonstrated. The IMF officer added that central banks face greater risks in implementing these technologies, as they generally outsource development to third parties.
“It’s the weakest link. You can have a secure system, but if the people who operate the system click on a phishing e-mail or allow a vulnerability, your most robust system won’t help with security.”
Robleh Ali, a research scientist at the MIT Digital Currency Initiative and a former officer of the Bank of England, predicts that digital currencies from central banks will eventually take many different “hybrid” forms.
“You will probably end up with a hybrid. I don’t think every central bank would choose the same system. How they interact with each other is crucial, so you can sort them into one system.”
Bob Bench, the director of applied fintech research for the Federal Reserve Bank of Boston, claimed that cryptocurrencies like Bitcoin cannot scale to meet the needs of central banks.
“BTC is very interesting because it is usually only transaction values. But if you are trying to build up a retail bank’s central currency – like China, for example, 40 trillion in volume was generated last year through WeChat alone – you need something that can constantly move value and move quickly without having to break. “
Despite the recognition that DLT “might work,” the federal reserve officer urged central banks to consider the risks of “their full confidence and confidence in the currency of their government” in DLT.
Bench added that Alipay and WeChat have become the digital central bank reserves in the world after the move of the People’s Bank of China to directly finance both platforms since June 2019.