In an interview with The Block, Fadi Aboualfa, the head of research at crypto brokerage Copper, expressed that the existing Central Bank Digital Currency (CBDC) models are “not a viable cash equivalent that people could use in daily transactions.”
Aboualfa raised doubts about CBDCs despite the recent proposal for Hong Kong to launch its (CBDCs) and the Bank of International Settlements (BIS) unveiling a blueprint for a global “unified ledger” to support CBDCs and tokenized assets.
In the interview, he stated, “There hasn’t been an actual CBDC model that is technically a replacement for cash. They all have several flaws, and for multiple reasons, issuing a CBDC by a central bank would be an enormous undertaking.”
Current CBDC Models Fall Short: Failing to Meet Expectations
Aboualfa’s concerns stem from the perceived shortcomings of current CBDC models. He believes that the existing models still need to successfully address all the necessary technical aspects to function as a true replacement for physical cash.
These flaws in the designs of CBDCs raise doubts about their practicality and effectiveness in real-world scenarios.
Moreover, Aboualfa emphasizes the magnitude of the challenges in implementing a CBDC.
He points out that the issuance of a CBDC by a central bank is a complex endeavor that requires careful consideration of various factors.
Transitioning from traditional currency to a digital equivalent involves significant logistical, technological, and regulatory hurdles that must be overcome.
He further emphasized the insufficient attention given to the crucial aspect of CBDC interoperability. He pointed out that the existing designs indicate the presence of multiple blockchains with intermediaries governing the flow.
“By blindly pursuing uniform standards and blockchain utilization, it becomes impractical to expect a unanimous consensus on the global design and structure of a CBDC simultaneously.
The designs and models should prioritize integration rather than vendor lock-in, considering that each central bank will have distinct considerations and requirements,” he added.
Researcher Reveals Challenges in CBDC Issuance: Central Banks Lack Expertise for Automated Decentralization
According to the researcher, two possible methods of issuing CBDCs are directly from the central bank or through commercial banks.
Aboualfa pointed out that central banks need more expertise and infrastructure to establish a fully automated, decentralized equivalent to cash.
“Each central bank is developing its isolated approach, and the infrastructure for retail wallets is not yet in place,” he explained.
Regarding CBDCs issued by commercial banks, Aboualfa expressed concerns about potential consumer confidence issues if the tokens bear specific branding associated with a particular commercial bank.
“If one of these banks were to be involved in a scandal, it could create chaos in decentralized open markets,” Aboualfa cautioned.
Aboualfa further highlighted the intricacies involved in establishing trading pairs and the challenges associated with maintaining a peg between CBDC brands issued by commercial banks.
In an interview with The Block, Fadi Aboualfa, the head of research at crypto brokerage Copper, expressed that the existing Central Bank Digital Currency (CBDC) models are “not a viable cash equivalent that people could use in daily transactions.”
Aboualfa raised doubts about CBDCs despite the recent proposal for Hong Kong to launch its (CBDCs) and the Bank of International Settlements (BIS) unveiling a blueprint for a global “unified ledger” to support CBDCs and tokenized assets.
In the interview, he stated, “There hasn’t been an actual CBDC model that is technically a replacement for cash. They all have several flaws, and for multiple reasons, issuing a CBDC by a central bank would be an enormous undertaking.”
Current CBDC Models Fall Short: Failing to Meet Expectations
Aboualfa’s concerns stem from the perceived shortcomings of current CBDC models. He believes that the existing models still need to successfully address all the necessary technical aspects to function as a true replacement for physical cash.
These flaws in the designs of CBDCs raise doubts about their practicality and effectiveness in real-world scenarios.
Moreover, Aboualfa emphasizes the magnitude of the challenges in implementing a CBDC.
He points out that the issuance of a CBDC by a central bank is a complex endeavor that requires careful consideration of various factors.
Transitioning from traditional currency to a digital equivalent involves significant logistical, technological, and regulatory hurdles that must be overcome.
He further emphasized the insufficient attention given to the crucial aspect of CBDC interoperability. He pointed out that the existing designs indicate the presence of multiple blockchains with intermediaries governing the flow.
“By blindly pursuing uniform standards and blockchain utilization, it becomes impractical to expect a unanimous consensus on the global design and structure of a CBDC simultaneously.
The designs and models should prioritize integration rather than vendor lock-in, considering that each central bank will have distinct considerations and requirements,” he added.
Researcher Reveals Challenges in CBDC Issuance: Central Banks Lack Expertise for Automated Decentralization
According to the researcher, two possible methods of issuing CBDCs are directly from the central bank or through commercial banks.
Aboualfa pointed out that central banks need more expertise and infrastructure to establish a fully automated, decentralized equivalent to cash.
“Each central bank is developing its isolated approach, and the infrastructure for retail wallets is not yet in place,” he explained.
Regarding CBDCs issued by commercial banks, Aboualfa expressed concerns about potential consumer confidence issues if the tokens bear specific branding associated with a particular commercial bank.
“If one of these banks were to be involved in a scandal, it could create chaos in decentralized open markets,” Aboualfa cautioned.
Aboualfa further highlighted the intricacies involved in establishing trading pairs and the challenges associated with maintaining a peg between CBDC brands issued by commercial banks.