(Kitco News) - Credit card giant Mastercard has created a new partnership program to explore the benefits and limitations of central bank digital currencies (CBDCs) with seven prominent crypto and FinTech firms, it announced on Aug. 17.
Mastercard said that while 93% of the world’s central banks are working on CBDCs, but “their efforts haven’t captured the public’s attention — for better or, more recently, for worse — like cryptocurrencies have.
” But the payment giant said that CBDCs are gaining momentum and have “the potential to have an even bigger impact on our everyday lives.” Jesse McWaters, head of global regulatory advocacy at Mastercard, said there are many questions that central banks need to consider, including “the role of the private sector in CBDC issuance, security, privacy and interoperability […] what specific challenges CBDCs would solve and whether they’re even the right tool for the job.” To address these questions, Mastercard has formed a CBDC Partner Program with leading blockchain technology and payment service providers “to foster collaboration with key players in the space so they can drive innovation and efficiencies.” “We believe in payment choice and that interoperability across the different ways of making payments is an essential component of a flourishing economy,” said Mastercard's head of digital assets and blockchain Raj Dhamodharan. “As we look ahead toward a digitally driven future, it will be essential that the value held as a CBDC is as easy to use as other forms of money.” The seven initial partners joining Mastercard in the program are CBDC platform Ripple, blockchain and Web3 software company Consensys, multi-CBDC and tokenized assets solution provider Fluency, digital identity technology provider Idemia, digital identity consultant Consult Hyperion, security technology group Giesecke+Devrient and digital asset operations platform Fireblocks. Mastercard said that there are plenty of issues for the new partnership to explore as the technology continues to mature. “For one thing, CBDCs have yet to gain wide acceptance,” they wrote. “While BIS expects as many as 24 central bank digital currencies to be circulating by decade’s end, more than two-thirds of central banks say they’re unlikely, in the near term, to issue a digital currency people can use for everyday purchases.” Among the key problems yet to be resolved is how central banks will balance privacy and transparency. “Privacy is extremely important to users,” said Jerome Ajdenbaum, head of digital currencies at Idemia, citing a recent European Central Bank survey on the digital euro. “It’s really the No. 1 topic.” Ajdenbaum said that it’s essential that central banks and their technology partners actually demonstrate to end users that their privacy is protected, “not just that we promise.” McWaters said that CBDCs shouldn’t be adopted in a vacuum, and the Mastercard CBDC Partner Program “will help central banks understand how to develop a CBDC that adds something new and valuable” to their economy. “It’s more important to get it right than to be first,” he said. “By assembling the strengths, deep expertise and different capabilities of these partners, we can drive innovation in the central banking community and along the CBDC value chain as the space continues to evolve,” Dhamodharan added. Mastercard has been active in the CBDC space in the last year. Last November, the credit card giant participated in the New York Fed’s 12-week CBDC pilot project to test “technical feasibility, legal viability, and business applicability of distributed ledger technology” on a regulated liability network . “The NYIC looks forward to collaborating with members of the banking community to advance research on asset tokenization and the future of financial market infrastructures in the U.S. as money and banking evolve," said NYIC Director Per von Zelowitz at the time. The pilot tested an RLN design that operates exclusively in U.S. dollars where banks “issue simulated digital money or ‘tokens’ – representing the deposits of their own customers – and settle through simulated central bank reserves on a shared multi-entity distributed ledger.” The project also tested the feasibility of a “programmable digital money design” that is “potentially extensible to other digital assets,” and it will test the compatibility of the RLN with existing laws and regulations and include “dialogue with the broader U.S. banking community, including community and regional banks.”
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