Visa announced plans to expand its crypto services by joining forces with blockchain software company Consensys to build an on-ramp for central bank digital currencies (CBDC).
The payments giant intends to launch a “CBDC sandbox” this spring, where central banks can experiment with distributing the technology after minting on Consensys’ Quorum protocol, Yahoo Finance reported.
Central banks rushing to mint own coins
As reputable financial companies dabble in crypto payments and national banks rush to create their own digital coins, this partnership emerges as the latest development in the booming cryptocurrency market. Chuy Sheffield, Visa’s head of crypto, commented:
Central banks are moving from research to actually wanting to have a tangible product they can experiment with. Visa’s approach is notable for how it can help maintain the relevance of its payment network amidst fast-moving changes in the payment space that could undercut its business model.
CBDC protocols are “permissioned” unlike cryptocurrencies like Bitcoin and Ethereum, which means national banks always have monetary and governance control.
The partnership between Visa and Consensys is based on a “two-tier” CBDC distribution model. National banks will design their digital currency on Consensys’ Quorum, establishing the respective monetary and governance rules.
Then, they will utilize Visa’s infrastructure to distribute the currency through commercial banks and other financial mediators.
Number of countries exploring CBDCs more than doubled
The number of countries exploring central bank-issued stablecoins has more than doubled in the last year and a half. Just under 90 countries are considering the financial tech one way or another according to the Atlantic Council’s CBDC tracker.
They represent 90% of the gross domestic product worldwide. The Federal Reserve and a few other major central banks are notably absent from the list.
Wide ranging use case for CBDCs
There are two main reasons to utilize CBDCs according to Visa’s experts. They can ensure more efficient distribution of stimulus relief to developed countries, and in more targeted ways, such as allowing the funds to be used only for specific things or giving them an expiration date.
Secondly, developing countries can use them to provide unbanked citizens with greater financial access.
Potential issues with CBDCs
The digital currency isn’t without issues. Their adoption and acceptance hinges on the power given to central banks through the technology. It might pose a challenge to the supremacy of fiat currency like the U.S. dollar, the main reserve currency in the world.
