The Future of Digital Currency: Key Insights on CBDC from the Global Digital Monetary Institute Symposium

The Digital Monetary Institute (DMI) Symposium, held in London on May 10-11, 2023, brought together experts (both in person and virtually ) in digital currencies-representatives from 90+ central banks, regulators, financial institutions, and technology companies-to discuss the latest developments in digital finance.

The event provided attendees with a valuable opportunity to learn about the latest developments in digital finance and network with other professionals in the field.

It was divided into eight sessions, each focusing on a different aspect of digital finance, including the design and implementation of retail CBDCs (central bank digital currencies), the role of stablecoins and tokens in the financial system, the future of cross-border payments, digital asset regulation, etc.

SDK.finance Founder and CTO Pavlo Sidelov (he is also known as an author of the book “The World Of Digital Payments: Practical Course”)  was one of the symposium participants and shares his insights and thoughts on the future of central bank digital currency (CBDC).

Challenges connected to the introduction of CBDC

There is no doubt that CBDC has enormous potential. It is also clear that central banks around the world are increasingly considering the introduction of retail CBDCs.

Digital currencies can become a powerful tool on the road to a cashless society and a robust alternative to card schemes such as Visa or MasterCard, which currently dominate the digital payments space worldwide.

However, central banks face numerous challenges, both technical and regulatory, in developing and launching a central bank digital currency.

Their most important role in this context is to ensure that central bank money is available to consumers in the modern economy. Since private money is subject to credit and liquidity risks, it is important to have a stable monetary and financial system backed by safe central bank money.

Financial stability

In terms of financial stability, a shift of bank deposits into CBDC and stablecoins after the introduction of digital currency could lead to an increase in lending rates.

Servicing not only other banks but also individual consumers is another obstacle for Central Banks, as they typically deal with other banks but not individuals. They lack an understanding of this market and its interrelationships, and may need to revise their workflows to successfully introduce digital currencies.

Regulations

There is still much for central banks to do to bring clarity to the digital currency space. The need to develop regulatory frameworks is now in the spotlight.

The difficulty is that regulators must respond to the constant changes in the digital payments space, striking a balance between maintaining stability and fostering innovation and associated benefits.

Another factor adding to the complexity is the fact that each central bank must develop its own regulatory framework and then ensure interoperability in cross-border payments at the international level.

However, despite the fact that digital asset regulation is still evolving, it has become clear that regulators are taking the legal issues seriously.

Privacy and security

Right after the regulatory challenge, cybersecurity is another hurdle that digital finance must overcome.

Individual consumers are increasingly concerned that CBDC will drive them into a kind of slavery of the future, as any microtransaction or purchase made with digital currency will be tracked (or at least have the possibility of being tracked), unlike cash transactions.

Given the privacy concerns about state-sponsored programmable money, it is imperative to ensure that the security of the system is paramount and that no programmable functions are initiated by governments or central banks.

Technology

The technology development phase for a retail CBDC is critical because of the central role it will play in the financial system. A dedicated ecosystem is required for digital currency to function, transactions to be made, payments to be processed, and money to be transferred. This is something that central banks typically do not have experience with and could require the involvement of specific expertise and technical solutions.

It has been communicated that the core ledger must meet strict criteria, including enhanced data protection and higher performance. However, there is a balance to be struck between security guarantees and transaction speed.

While distributed ledger technology can be helpful for decentralization, it also risks introducing unnecessary technical complexity. Therefore, it may be worthwhile to try to achieve similar decentralization benefits through alternative data management strategies.

SDK.finance core ledger software and its CBDC potential

Pavlo Sidelov, SDK.finance Founder and CTO, said, “As a FinTech and PayTech software provider, SDK.finance has its hand on the pulse of developments in the CBDC space, as I believe this is the money of the future and I want my company to be a part of it.”

In October 2022, the SDK.finance team took second place at the CBDC Hackathon 2022, hosted by Barclay’s Rise in London. They presented a fully interactive prototype to demonstrate a solution to the CBDC Coding Challenges.

The prototype was based on the SDK.finance core ledger platform, which provides a foundation for transactional accounting and multi-asset/multi-currency capabilities, along with basic entities such as accounts, banks, customers, etc. These capabilities of the SDK.finance platform facilitate integration with any CBDC layer and can streamline operations with digital currency accounts.

“Basically, our ledger layer can be integrated into any central banking system and provide an ecosystem for digital currency to function. In other words, it provides an environment for digital payment instruments and allows to set up CBDC accounts, load funds via cards or bank transfers (using fiat money), make transfers in digital currency, or make payments at the POS.

We are ready and eager to enter the field of digital currencies and invite the institutions dealing with the challenges of CBDC technology to cooperate with us”, says Pavlo Sidelov.

Pavlo Sidelov is a key ideologue and solution architect at SDK.finance, a FinTech software provider company, with 16 years of experience in digital payments. During his career, Pavlo Sidelov has launched several FinTech products, of which SDK.finance is one of the most important.

Pavlo is an independent advisor to the OSCE (Financial and Cybercrime Division) and a member of the Forbes Technology Council.
He is also the author of the book “The World Of Digital Payments: Practical Course (FinTech)” and the inventor of several patents for payment technologies and methods.

CBDC (central bank digital currency) is one of Pavlo’s areas of interest, and he is driving research and development for the SDK.finance CBDC solution.

Currently, Pavlo is a PhD student working on his dissertation on “Digital currencies and transaction data analytics of payment systems”, researching the use of AI and ML for fraud prevention and anomaly detection in the payments industry.