Imagine a cross-border central bank digital currency (CBDC) that can make cheap instant payments — in more than one currency.
South Africa, Singapore, Malaysia, and Australia plan to create a similar CBDC system soonest. They’ve even named the new experiment “Project Dunbar”, which will kick off this week under the sponsorship of the Bank for International Settlements.
If the idea works — a big “if” — then this project will revolutionize digital finance in those countries, if not in the entire world.
Building and testing CBDCs isn’t a new concept, though.
The Bahamas tried and tested domestic CBDCs. Switzerland and the Monetary Authority of Singapore have put to the test domestic and cross-border CBDC systems in one currency. However, none has tested CBDC systems with multiple currencies.
See why Dunbar is unique?
Why you should care about CBDC initiatives
A CBDC system works by linking different silos and currencies. That’s the selling point — and the Holy Grail — of Dunbar.
But China, Thailand, and United Arab Emirates want to “topple” the Dunbar initiative by embarking on their supposed mCBDC project that employs similar technology.
Here’s why you should care about these initiatives:
To begin with, these experiments show that cryptocurrencies are now the in-thing, and they’ve gone mainstream. To cement this truism: the US Federal Reserve is expected to report on its efforts in creating a (domestic) dollar CBDC soon.
Second, the proliferation of central banks (across the world) jumping on these experiments is a testament to the looming power struggles in the corridors of finance.
They’re even racing to create the most secure digital coins — which now explains the mushrooming of Ethereum, Cardano, Solana, and other lesser-known digital assets.
Third, Asia is leading in much of these experiments. China is a case in point: it’s currently developing a digital Yuan to boost global finance dominance. The central banks of Hong Kong and Singapore are also moving fast in this respect.
Finally, the initiatives will not directly impact crypto. Why? Because CBDCs are not an effective form of money. Mobile phone banking, credit cards, and paper money are still faster.
Dunbar will raise financial expectations
If a system exists that can raise financial expectations — that is, improve fast, instant, and cheap payments — it is welcome.
Dunbar seems like a “perfect” experiment that promises to dramatically lower costs of cross-border transfers and more. We can only wait.
That said, we should all celebrate if systems such as CBDCs can stir sleepy finance cartels. Competition is healthy, right? It spurs innovation.
