Widespread Adoption of CBDCs Remains Difficult: Mastercard

• Ashok Venkateswaran, Mastercard’s blockchain lead, believes retail CBDCs lack a compelling use case in many advanced economies.
• Widespread adoption of retail CBDCs faces hurdles due to consumer comfort with existing forms of money.
• Building the necessary infrastructure for CBDC transactions requires extensive time and coordination.

Central bank digital currencies (CBDCs) are garnering increasing attention globally, with around 60% of countries exploring their development. However, widespread adoption of CBDCs for retail use faces major hurdles, according to Ashok Venkateswaran, Mastercard’s blockchain lead for Asia-Pacific.

In an interview with CNBC, Venkateswaran stated that there is not yet enough justification for the broad rollout of retail CBDCs. He noted that consumers are already comfortable using existing forms of money. Building the infrastructure to facilitate CBDC transactions economy-wide would also require extensive time and coordination between central banks and private partners.

Mastercard’s blockchain lead believes CBDCs compelling use case lack

As a result, Venkateswaran believes retail CBDCs lack a compelling use case in many advanced economies. He cited Singapore as an example, where the current digital payment system is highly efficient. Wholesale CBDCs for interbank settlements may have more utility there.

Nonetheless, over 100 countries are exploring CBDCs, with 11 already live. Mastercard itself recently completed testing of a CBDC solution with the Hong Kong Monetary Authority. The pilot simulated using electronic Hong Kong dollars for everyday consumer transactions.

Venkateswaran explained that for countries with less developed payment rails, CBDCs can help modernize systems. By collaborating closely with private firms, central banks can build out the required digital ecosystems.

But he stressed that replacing existing networks is not itself enough justification to launch a retail CBDC. The motivation should stem from solving concrete problems in the local context.

The nuanced view highlights the complex considerations around CBDCs. The technology promises faster and cheaper payments, especially cross-border. However risks around financial stability, data privacy, and monetary policy require careful evaluation.

Wholesale CBDCs for interbank transfers seem to have clearer advantages. On Thursday, the Monetary Authority of Singapore announced it will pilot wholesale CBDC use with local banks starting in 2024. The goal is to improve efficiency in domestic business-to-business payments.

As per IMF research, emerging economies stand to benefit most from CBDCs, given their generally lower access to digital finance services. Yet advanced economies are taking the lead in piloting CBDCs.

The mismatch suggests a nuanced approach is required depending on a country’s maturity level. While the potential remains huge, CBDCs are no panacea and require calibrated adoption.

Mastercard’s warnings around lack of infrastructure and unclear incentives are borne out across ongoing pilots. For example, the Bahamas CBDC saw low uptake and usage challenges early on before adjustments to the model.

As more experiments unfold, best practices and targeted use cases will emerge to justify broader CBDC adoption. But Mastercard advises central banks to carefully weigh their motivations before pursuing large-scale digital currency projects.

With payment innovation accelerating, the coming years will prove decisive for CBDCs. Mastercard and its competitors are primed to enable the technology should compelling applications develop for businesses and consumers. However critical questions around practical utility persist that prevent a rapid transition away from cash and existing digital money.