Learning Objectives:

  • Understand Central Bank Digital Currencies (CBDCs) and their design choices.

  • Explain the role of blockchain and distributed ledger technology in payments.

  • Analyse the potential for payment innovations to disrupt and drive change.

8.1 Central Bank Digital Currencies (CBDCs)

The University of Southampton module covers “Central Bank Digital Currencies” as a core topic . The University of Newcastle course covers “payment innovations – Bitcoin, stablecoins and CBDC” . The GIFT IFI curriculum includes “Emerging Trends: CBDCs, Offline Payments, Crypto Payments” .

What are CBDCs?

  • Digital forms of fiat currency issued by central banks.

  • Distinct from cryptocurrencies as they are centralised and backed by the state.

Design Choices:

  • Retail vs. Wholesale: Retail CBDCs are accessible to the public; wholesale CBDCs are restricted to financial institutions.

  • Account-Based vs. Token-Based: Account-based CBDCs are linked to individual accounts; token-based CBDCs are like digital cash.

  • Direct vs. Indirect: Direct CBDCs are issued directly by the central bank; indirect CBDCs are issued through commercial banks.

Policy Implications:

  • Monetary Policy: Impact on the transmission of monetary policy.

  • Financial Stability: Potential effects on bank funding and financial intermediation.

  • Financial Inclusion: Potential to expand access to digital payments.

  • Privacy: Balancing privacy with regulatory requirements.

8.2 Blockchain and Distributed Ledger Technology

The GIFT IFI curriculum includes “Blockchain Fundamentals” as a core topic . The RUDN University course covers “Blockchain, cryptocurrencies, electronic money” .

Blockchain Fundamentals:

  • A distributed ledger that records transactions in blocks.

  • Immutable and transparent.

  • Enables peer-to-peer transactions without central intermediaries.

Applications in Payments:

  • Cross-Border Payments: Faster, cheaper, and more transparent.

  • Smart Contracts: Self-executing contracts that automate payment flows.

  • Tokenisation: Representing assets as tokens on a blockchain.

8.3 The Future of Payments

The University of Newcastle course requires students to “Analyse and assess the potential for payment innovations to disrupt and drive change in payments and/or financial stability” . The Wharton-Visa programme covers “Prepare for the future of payments, anticipating what comes next” .

Key Trends:

  • Real-Time Payments: The shift to 24/7/365 instant payments.

  • Interoperability: Systems that work together seamlessly across providers and borders.

  • Digital Public Infrastructure: Shared payment rails that reduce friction and lower costs.

  • Digital Currencies: CBDCs, stablecoins, and other forms of digital money.

  • Artificial Intelligence: AI-powered payment routing, fraud detection, and personalisation.

  • Sustainability: The role of payments in promoting sustainable economic activity

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