Demystifying Central Bank Digital Currencies (CBDCs)
MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.
The recent article published by Finextra that highlights the industry's alleged split on Central Bank Digital Currencies (CBDCs) surprisingly reveals more about the prevalent lack of understanding on the topic than it does about genuine industry sentiments.
At the heart of this conversation lies the CFA Institute, home to some of the brightest financial thinkers in the world. Yet, the institute's members' response to CBDCs, as presented in the survey, is baffling.
Why does an institution, representing the crème de la crème of the financial world, demonstrate a palpable ignorance regarding what a CBDC is or its intended functionality?
One must ponder whether the questions posed in the survey were clear and adequately explanatory as well as whether the respondents were truly aware of the topic at hand.
Ignorant Results: The Pitfall of Unclear Surveys
Before delving into intricate discussions about the potential benefits and drawbacks of CBDCs, any survey or study needs to ensure its participants have a clear understanding of the topic in question.
By not ensuring this foundational knowledge, the survey risks collecting, collating, and disseminating errors in perception. Such results do more harm than good, misinforming the public and perpetuating misconceptions.
It's a disservice to the financial industry and, by extension, to commercial real estate and other industries served by financial professionals when an article portrays such unclear stances from professionals who should, by the nature of their training and profession, be better-versed in the topic.
Was there a failure in the way the questions were framed, or did the respondents genuinely not understand CBDCs? Whichever the answer, it's evident that a revisit and re-evaluation of these seemingly ignorant results are in order.
Marketing Hype: CBDCs Beyond Consumer Misconceptions
With the rapid evolution of technology and financial products, the marketing world often finds itself ahead of the actual product or service.
This frenzy is evident in the case of CBDCs. The marketing hype surrounding CBDCs has unfortunately tipped with misinformation, leaving many consumers (and surprisingly even professionals) with material misconceptions of their intended function.
CBDCs Contemplated to Speed Liquidity Delivery to Other Central and Member Banks
Contrary to popular belief (and marketing hype), CBDCs aren't designed in their current form to be of value for direct consumer use. They aren't an effective alternative to cryptocurrencies, like Bitcoin or Ethereum, that individuals might use for personal transactions.
This is because, critically, no end-users participate in mining or validating CBDCs, leaving no incentive to use them in the consumer ecosystem.
Instead, their purpose is far more significant and nuanced. CBDCs aim to streamline interbank processes, specifically the instantaneous central bank funding needs among various central and member banks.
In essence, they offer a faster, more efficient method of doing what currently takes days to achieve.
What Are the Advantages of CBDCs?
According to a report by McKinsey, CBDCs hold various advantages, including reducing operational complexities, improving liquidity management, and providing real-time data on money flow.
They have the potential to revolutionize how central banks operate in the international sphere, impacting monetary policy, financial stability, and more, to include the ability to deliver liquidity at scale and on target in real-time to the commercial real estate industry, when and if it should need such a thing. And that time is likely coming.
CBDCs: Not a Panacea, Not the Bogeyman
As we move into an era where digital currencies might reorient the financial landscape, it is important that industry players, especially those as significant as the CFA Institute, are well-informed and clear about such innovations.
Surveys that perpetuate misconceptions, whether due to poorly framed questions or genuine ignorance, need to be scrutinized and refined to avoid the appearance of ignorant results.
It's time to rise above the marketing misconceptions and examine the genuine potential and challenges of CBDCs, grounded in knowledge and understanding.
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