Global adoption of CBDCs is growing, but interoperability presents challenges

Swift Director of Strategy and Innovation Pallavi Thakur and Citi’s Ryan Rugg shared their insights on Money20/20 from their recent collaborative CBDC experiment.

Both Thakur and Rugg touched on the rapid progress in global adoption of central bank digital currencies (CBDCs). However, they highlighted the urgent need for interoperability between different systems, a challenge that requires immediate attention.

“It’s like the early days of the internet. “All these various intranets are evolving,” Rugg said. “What will be the connection between all this?”

Adoption of CBDCs

Adoption of CBDCs is gaining momentum globally as central banks explore CBDCs to improve payment systems, ensure financial stability and stimulate economic growth. CBDCs are digital versions of traditional fiat currencies controlled by central banks. Unlike cryptocurrencies, CBDCs have a stable value tied to their country’s currency, supported by monetary policies and regulations.

Governments around the world are considering CBDCs; 134 countries are exploring the idea and 36 countries are piloting initiatives. However, digital currency also brings challenges such as susceptibility to fraud, glitches and transaction errors.

“When you talk about 36 countries, think 36 bilateral connections, that’s not going to scale, right? So these numbers are great, but there are challenges as well,” Thakur said. “If I, as a consumer, want to send a payment from my digital account to someone in India that has to be in digital rupees, it should be absolutely seamless,” Thakur said.

market benefit

When they first emerged, CBDCs were largely limited to niche experiments or early-stage pilot programs. Today, they have become much more global and widespread, with widespread adoption among banks and retailers, reflecting a significant shift towards digital currencies in the financial landscape.

Addressing this adoption, Rugg emphasized the need for utility and unity among all financial institutions working with CBDCs and the need for seamless transactions between different digital currencies.

“It needs to be a marketplace service where there is no single entity controlling it,” Rugg said.