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Mastercard invites central banks to test digital currencies

Mastercard launched a testing environment for central banks engaged in the research and/or development of digital currencies last week.

Mastercard has launched a testing environment for central banks engaged in research and/or development of digital currencies

“Central banks have accelerated their exploration of digital currencies with a variety of objectives, from fostering financial inclusion to modernising the payments ecosystem,” said Raj Dhamodharan, executive vice-president, Digital Asset and Blockchain Products and Partnerships, Mastercard. 

“Mastercard is driving innovation with the public sector, banks, fintechs, and advisory firms in the exploration of CBDCs (central bank digital currencies), working with partners that are aligned to our core values and principles. This new platform supports central banks as they make decisions now and in the future about the path forward for local and regional economies,” he added.

Research and development

Based on a Bank of International Settlements-commissioned survey, about 80 per cent of central banks surveyed have engaged in some form of central bank digital currencies (CBDC) works and some 40 per cent of central banks have progressed from conceptual research to experimenting with concept and design.

To this end, the platform enables the simulation of issuance distribution and exchange of CDBCs between banks, financial service providers, and consumers.

“Central banks, commercial banks, and tech and advisory firms are invited to partner with Mastercard to assess CDBC tech designs, validate use cases and evaluate interoperability with existing payment rails availability for consumers and businesses today,” release from Mastercard stated.

Leadership through partnerships

As more central banks take advantage of digital payments as a means of managing monetary policy and maintaining financial stability, through the distribution of digital currency, Mastercard is hoping to leverage its expertise to facilitate the practical, safe and secure development of digital currencies.

As a world-renowned leader in the payments technology space, the company said it has the capacity to bring stakeholders together to “ensure a level-playing field for everyone — from banks to businesses to mobile network operators — in order to bring the most people possible into the digital economy”.

At the same time, Mastercard underscored its commitment to support central banks’ preferred path to modernise payments while they aim to identify solutions that can seamlessly integrate with other existing payment methods.

“The company is committed to forging partnerships between public and private sectors tohetger to transform the way people and business transact,” Mastercard emphasised.

“This new platform supports central banks as they make decisions now and in the future about the path forward for local and regional economies.”

– Raj Dhamodharan, executive vice-president, Digital Asset and Blockchain Products and Partnerships, Mastercard

Adding to this, Sheila Warren, Head of Blockchain, Digital Assets and Data Policy at the World Economic Forum, said: “Collaborations between the public and private sectors in the exploration of central bank digital Currencies can help central banks better understand the range of technology possibilities and capabilities available with respect to CBDCs. Central banks can benefit from support in exploring the option set available to them with respect to CBDCs, as well as gaining insight into what opportunities may be forthcoming.”

A regional perspective

Here in the Caribbean, the Eastern Caribbean Central Bank has taken the lead in launching a digital currency across the markets it serves, including Antigua and Barbuda, Grenada, Saint Kitts and Nevis, and Saint Lucia.

The Eastern Caribbean Central Bank in Basseterre, St Kitts-Nevis (File photo)

A joint project with Barbados-based digital currency developer Bitt, the DCash pilot involves the secure minting of a digital version of the Eastern Caribbean dollar (DCash) as legal tender.

Among other things, the pilot aims to reduce or eliminate the relatively high cost of current payment methods and banking services; address the inefficient methods of settling cheque transactions, which slow the pace of commerce; and fill gaps where banking services have failed to fulfil the needs of various customers.

“The objectives of the pilot include increasing opportunities for financial inclusion, growth, competitiveness, and resilience for citizens of the ECCU,” the monetary authority pointed out.

Elsewhere, the Bank of Jamaica recently issued an invitation to CBDC providers to develop and test potential CBDC solutions within the framework of its Fintech Regulatory Sandbox.

A view of the Noel Nethersole statue standing in front of Bank of Jamaica in downtown Kingston, Jamaica. (Photo: Miami Herald)

“If a viable solution is adopted and introduced, the anticipated benefits of CBDC for Jamaican citizens, businesses and the Government include increased financial inclusion, as it will provide another means of efficient and secured payments. For deposit-taking institutions, CBDC presents an opportunity to improve cash management processes and costs,” the central bank shared in a release.

Mastercard acknowledges, however, that each central bank will take a different approach in developing CBDCs and, as a result, “the platform stands ready to explore whether CBDCs fit with the needs of a region or country.

It further noted that among the different testing uses of the platform include the issuance, distribution and exchange of of currence; payment for goods and services; and security of transactions.