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  • J McGlynn and M Bacina

HSBC Report: CBDC could be better than stablecoins

Updated: Mar 13

HSBC, a multinational British Bank with total assets of ~$3 trillion, has praised CBDCS as the new form of digital money while criticising digital currencies and stablecoins due to a lack of regulatory oversight.

In the report, authored by Mr Noel Quinn, HSBC Group Chief Executive Officer, HSBC recognised that CBDCs area positive medium of exchange which, Mr Quinn argues does not pose any risk to consumers.

Mr Quinn said:

Central Bank Digital Currencies (CBDCs).. are legal tender backed by a central bank or government authority, which means they are transparent and stable – avoiding many of the risks associated with some other forms of digital money, particularly cryptocurrencies and some stablecoins.

The report goes on to argue that CBDC's planned fast cross border payments and settlements features could "spur economic growth" and "fuel innovation across the financial sector". Specifically, a near instant payment capability could lower the price of issuing and trading bonds and other securities as well as assist organisations with their fiscal and monetary policy objectives by creating a direct and cost effective way to make transfers to consumers.

While clearly in support of CBDCs, the report identifies hurdles which will need to be cleared before CBDCs are as safe and reliable as existing money, clarifying that before CBDCs can be adopted by the mainstream, they first need to be “safe, efficient, and genuinely transformative”.

Mr Quinn also said:

Central banks and public authorities will need to consider the impact CBDCs could have on the supply of credit, market activity and financial stability. They will need to meet customer expectations for data privacy and protection, while enabling the mitigation of financial crime risks and withstanding cyber-attacks.

Despite these issues, HSCB asserts that these problems can be overcome by choosing the right model used for CBDCs. HSBC cites a hybrid model - also known as a two-tier model because the CBDC is a claim against the central bank while payment services and account management activity are managed by commercial banks, is "by far the best design option." But when it comes to addressing the risks associated with cryptocurrency, the bank seems to be more skeptical, arguing that for stablecoins and cryptocurrencies to become as reliable as CBDCs, regulation would be needed.

Mr Quinn added:

Even then, only designs that are sufficiently well anchored to achieve price stability, and correspond with current approaches to financial crime prevention, are likely to be useful as a reliable and safe means of payment.

There is a spectrum of different CBDC approaches being taken, with China representing an extreme where the People's Bank of China has declared a ban on all cryptocurrencies and their related services, escalating its ongoing clampdown on bitcoin and other digital coins as it moves to roll out its own virtual currency, the digital yuan, and other countries looking to have banks issue commercial bank CBDC style tokens.


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