‘CBDCs are potentially useful,’ says Standard Bank’s chief executive

However, he does not share the same optimism about privately generated cryptocurrencies.

‘CBDCs are potentially useful,’ says  Standard Bank’s chief executive
Standard Bank Chief executive Sim Tshabalala. | Design by Ifeoluwa Awowoye | Image source: Standard Bank

Chief executive of the South African financial institution Standard Bank Sim Tshabalala has drawn a contrast between central bank digital currencies (CBDCs) and privately generated cryptocurrencies, saying that CBDCs have the potential to reduce financial crime and increase financial inclusion in the formal sector.

Key details

  • Speaking at the Standard Bank African Central Bank Conference (ACBC) last week, Tshabalala expressed doubts on whether private digital currencies — e.g., bitcoin and Ethereum’s ether — met any legitimate social needs, ITWeb reported.
  • Privately generated cryptos are decentralized and, to an extent, allow for anonymous transactions. The Standard Bank top gun argued that there is compelling evidence that they make it easier to hide or launder money which, according to him, could create risks for banks.
  • CBDCs, on the other hand, are state-controlled digital currencies, which, he said, would simplify inter-bank clearing because of blockchain’s ‘self-verifying’ properties and reduce tax evasion as well as other forms of financial crime.
  • In his speech, he further added that it is unclear how CBDCs held by an individual or a firm with the central bank differs from the central bank itself functioning as or turning into a retail bank.

What was said

  • Tshabalala said:
“CBDCs are an entirely different matter. In our view, wholesale CBDCs are potentially useful. They could exploit the self-verifying properties of blockchain to simplify inter-bank clearing. We also think retail CBDCs could serve a social purpose, particularly by increasing participation in the formal financial system, and by reducing opportunities for tax evasion and other forms of financial crime”

Fact check

  • Despite Tshabalala’s claims crypto makes money laundering easier, data from blockchain research company Chainalysis suggests otherwise. The illicit share of all cryptocurrency transaction volume in 2020, 2021 and 2022 were estimated to be 0.43%, 0.12% and 0.24%, respectively. In monetary terms, that’s $8.4 billion, $18.1 billion and $20.6 billion for 2020, 2021 and 2022, respectively.
  • By comparison, the estimated annual money laundered worldwide is between 2% and 5% of the global GDP (i.e., between $800 billion and $2 trillion).

Between the lines

  • Cryptocurrency has redefined payment systems worldwide. The permissionless system allows for funds transfer without third-party interference and control from any central governing body.
  • Many have described CBDCs as a move by governments to get in on the action with state-controlled digital currencies. Like regular cryptocurrencies, CBDCs can be blockchain-based.
  • While anonymity is a feature of private digital currencies, the identities of CBDC users would be linked to an existing bank account or identity profile. As such, the system is neither permissionless nor anonymous.
  • CBDCs are regulated by central banks, which defeats the main purpose for which crypto assets were originally made — permissionless and uncensored payment systems.
  • Kristalina Georgieva, managing director of the International Monetary Funds’ Atlantic Council argued that if CBDCs are designed prudently, they can offer more resilience and more safety compared to private forms of digital money.

Zoom out

  • Several African countries are formulating frameworks to facilitate the launch of CBDCs.
  • So far, Nigeria is the only African country to have launched a CBDC — the eNaira. However, adoption is still slow, with the eNaira only reaching $10 million in transactions in August 2022, after its launch in October 2021.
  • South Africa and Ghana are currently piloting their own CBDCs while other African countries such as Tanzania, Rwanda, Kenya, and Uganda among others are still at the research phase.