Canada, Netherlands, Ukraine Central Banks Say Blockchain Not Necessary for CBDC

At a recent event in Kyiv, Ukraine, during a discussion on central bank digital currency (CBDC) development between world monetary authorities, it appeared that a few of the central banks were not quite sold on the necessity of integrating blockchain technology.

The National Bank of Ukraine (NBU) organized the one-day conference whereby representatives of some of the world’s central banks shared ideas on their central bank digital currency (CBDC) projects. National Bank of Ukraine, which is itself a CBDC pioneer, has been working on its own digital currency pilot since 2018.

Testing and Discussion of Blockchain’s Viability  

Although the world’s central banks are making efforts to identify the best possible alternatives to rising digital assets such as cryptocurrency and stablecoins like Libra, the seminar event highlighted a different approach to creating a CBDC. The report of the conference discussion revealed strong indications that some of the world’s central banks, especially central bankers from Canada, Netherlands, and Ukraine, view blockchain as not necessary for digital fiat currency.

Roman Hartinger, the head of innovative development department at the National Bank of Ukraine, told CoinDesk. The central banks converged in the seminar as they wanted to test and discuss their ideas and conclusions with the banking community. The event featured the representatives or speakers of central banks from South Africa, Japan, Canada, Netherlands, Finland, Uruguay, Lithuania, and Belarus. While these nations are weighing the involvement of blockchain in building CBDCs, countries like the U.S and China are ahead of the game.

While the National Bank of Ukraine is working on developing a state-backed cryptocurrency, popularly known as “e-hryvnia”, the test indicates that “there is no main advantage in using particularly the distributed ledger technology to create a centralized system for issuing e-hryvnia.” 

The central bank does, however, not rule out the alternative “decentralized” model whereby multiple trusted payment processes would issue the state-backed digital currency (e-hryvnia). But the experiment is currently on hold and is awaiting pass on laws regulating digital assets in Ukraine and more inputs from the banking community.  

During the conference, the representatives from the Netherlands and Canada share the skepticism about the distributed ledgers. Scott Hendry, Bank of Canada’s senior special director of fintech stated that distributed ledger technology is not necessary to build a CBDC. On the other hand, Harro Boven, policy adviser at the Dutch central bank said that the essence of the distributed ledger technology infrastructure is that no single party or individual should be trusted completely, the same way as a central bank may not be trusted to maintain the integrity of the global ledger.

Facebook’s Libra a Wake-up Call for Governments

The rise of CBDCs came as a result of Facebook’s intention to launch Libra cryptocurrency. Libra coin was a wake-up call that challenged central banks to innovate. Libra was a shock to central banks in two major ways. First, Libra is poised to take over the majority of transactions due to the 2.7 billion users on Facebook’s combined platforms. Secondly, if the development and launch of Libra succeed, then central banks risk losing control of monetary policy. Central banks now consider creating central bank digital currencies as a response to Facebook’s Libra.  

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