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Visa launches pilot programme for central banks to test digital currencies: Report

It gives a chance for central banks to examine the use cases for their respective digital currency, prior to full rollout.

Visa will pilot a programme in April this year that will offer central banks a way to test retail applications for digital currencies (CBDCs), according to a report in Bloomberg. The company is launching this programme in collaboration with ConsenSys Inc.—a blockchain software company, the report added.

Visa had a discussion with nearly 30 central banks on their goals concerning CBDCs, the report said. Its partner, ConsenSys, has previously collaborated with several central banks to test CBDCs, including the Hong Kong Monetary Authority, the Reserve Bank of Australia, and the Bank of Thailand. The company is led by Ethereum co-founder Joseph Lubin.

Several central banks are exploring the option of CBDCs as a bulwark against cryptocurrencies’ growing popularity. Many of these banks view crypto as an existential threat. The pilot programme could prove to be useful in facilitating a faster rollout of CBDCs given Visa’s expertise in dealing with huge volumes of payments.

Mastercard has its own pilot programme

Mastercard had announced its own virtual testing environment for central banks to evaluate CBDC use cases in September 2020. The platform enabled the simulation of issuance, distribution, and exchange of CBDCs between banks, financial service providers and consumers.

The company had invited central banks, commercial banks, and tech and advisory firms to assess CBDC tech designs, validate use cases, and evaluate interoperability with existing payment rails available for consumers and businesses.

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What are CBDCs? They are digital currencies designed to be equivalent in value to a nation’s paper currency and subject to the same government-backed guarantees.

Which countries have piloted their CBDC programme?

  • China: The country banned almost all virtual currencies in order to promote its digital yuan. It is currently in the pilot stage. It started its work in 2014 and hence, has a considerable headstart.
  • Sweden: The Swedish Riksbank started its CBDC project, e-krona, in March 2017. The project intends to ensure instant payments at any time while exploring offline usability.
  • Bahamas: Bahamas was the first jurisdiction to fully launch its CBDC. The Central Bank of the Bahamas (CBoB) launched the Sand Dollar in October 2020, after conducting several pilots.
  • Nigeria: Nigeria issued the eNaira in October 2021. It was designed to complement Nigeria’s physical currency and not replace it. The eNaira was developed by fintech company Bitt, whose digital currency management system (DCMS) is also behind the Eastern Caribbean Central Bank’s CBDC.

Where does India stand with its own CBDC project?

The Reserve Bank of India governor Shaktikanta Das recently commented that the central bank needs to safeguard CBDCs from risks of digital frauds and cybersecurity before rolling them out. Das explained that the central bank had major concerns around fake Indian currency notes a few years ago. “Similar things can also happen when you are launching CBDC,” he asserted. Das said that the RBI will be careful and take preemptive steps to prevent fraud.

This may indicate that the central bank may not be rolling out CBDCs anytime soon as it continues to address the risks afflicting digital currencies.

Moreover, RBI Deputy Governor T Rabi Shankar disclosed that the bank is working on two types of CBDCs— wholesale, and retail.

“A lot of work has been done on wholesale account-based CBDCs. The retail side of CBDC is complicated and it will take time. The first side to get ready will be released first for the pilot,” said T Rabi Shankar.

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Written By

I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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