In a recent study of the Frankfurt School of Finance & Management about Libra and Central Bank Digital Currency (CBDC), it is stated that the launch of Libra and a Euro CBDC will have an extensive impact on the financial sector. A tokenized, local means of payment, such a Libra, could soon become a dreaded competitor for commercial banks when it comes to cross-border payments.
At the same time, the study points out that Libra and CBDC can also serve as catalyst of innovation in the banking sector. Several opportunities are pointed out:
- Banks could become essential in Libra and CBDC systems when it comes to generating returns.
- Banks could offer services that are in line with their traditional activities, such as the custody and distribution of digital money, together with AML and KYC services.
- The introduction of a digital, programmable Euro ensures a high degree of interoperability in multiple, fast-growing payment ecosystems. Here, banks could take the role of accelerators, developing standards concerning interoperability.
- A programmable, digital Euro is driven by smart contracts. Smart contract can be used to automate many processes in the financial service sector, such as payment of interest, leasing, and factoring. This way, a digital, programmable Euro could also be beneficial to banks.
Round table sessions DBC, 2Tokens & DNB
On the 13th of July, DBC, DNB, and 2Tokens hosted a private round table session to discuss point 4 mentioned above. DBC and 2Tokens have, partly based on submissions for the round table, expressed their preference for a CBDC system including smart contracts with complex logic. Although the complexity of launching such a CBDC system is higher, there are many advantages that highlight the importance of such a system:
- Explicit trust and cost transparency in code.
- Direct cost savings by bringing securities and money into the same digital system.
- Possibility of standardization.
- Privacy and compliance by design. The opportunity to audit without storing personal data unnecessary.