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Pix (and UPI, a related system in India with similar success) are my two go-to examples for how it makes sense for the central bank / public sector to get into

by c7b 2y ago

Pix (and UPI, a related system in India with similar success) are my two go-to examples for how it makes sense for the central bank / public sector to get into the retail payment space. It baffles me that most major central banks (that are considering it at all) are considering doing so in the form of CBDCs [0]. CBDCs are like a bundle of two services, central bank money and a payment system. The central bank money part is the one that has everybody questioning its use cases, the reason why banks generally oppose it (hence making them likely to nudge their customers away from it), and it's a genuine financial stability concern that requires safety measures like holding limits [1] that complicate UX and/or the design. The payment system is the part that imho makes complete sense, in multiple ways: more competition in a market dominated by two US networks, strategic independence wrt to a critical infrastructure, providing a public good for underbanked demographics,... I don't get why places like the ECB, Bank of England, Bank of Canada, PBC,... (the US Fed is one of the few not pushing too actively in that direction) insist on bundling the two together instead of focusing on the payment system. If you succeed there, the potential for success is massive, without needing a central bank money feature, as shown by Pix and UPI. Getting one such feature right is hard enough, I don't get why they don't just focus on that and leave the central bank money baggage by the wayside. [0] Central Bank Digital Currency, a form of money that has similar UX to bank accounts but represents a central bank liability, as opposed to commercial bank liabilities like your usual bank account. It doesn't need deposit insurance, it's legal tender and is at the same level as physical cash economically (M0). [1] see eg https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op326~d5c223d9b4.en.pdf https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op326~d5c223d9b...

alephnerd 2y ago
> most major central banks (that are considering it at all) are considering doing so in the form of CBDCs Other than the EU and UK, which other major CB is considering CBDCs alone? Numerically, most people I know in the space are heavily motivated by the Digital Public Infrastructure (DPI) model both India and Brazil have been using, and DPI has been a hot topic in the DevEcon space for 4 years now. In fact, Indian and Chinese lobbyists now compete with each other across Africa for DPI related infra work (Biden admin even helped support India's evangelism of the Indian DPI model in ASEAN and Africa), and Brazil's Pix has seen significant uptake in Argentina and Uruguay. And most regional economies like Vietnam, Pakistan, Nigeria, and South Korea have similar implantations The big difference might be public versus private domain experience. In newer economies like BRICS and much of ASEAN, the infra and norm setting work fell onto regulators. But in more developed economies like the US, UK, or EU, similar developments could be done by the private sector.
- c7b 2y ago
  > Other than the EU and UK, which other major CB is considering CBDCs alone? The ones I mentioned, eg, Canada [0], China [1]. But it's really most of them [2], the US is rather the exception. [0] https://www.bankofcanada.ca/digitaldollar/ https://www.bankofcanada.ca/digitaldollar/ [1] https://en.wikipedia.org/wiki/Digital_renminbi https://en.wikipedia.org/wiki/Digital_renminbi [2] https://cbdctracker.org/ https://cbdctracker.org/
  - alephnerd 2y ago
    China has backed UnionPay since the mid-2000s - the backbone is similar to that for UPI and Pix. And most of the countries on that list are either implementing their own payment infra or leveraging India, Brazil, Russia, or China's. It doesn't hurt to have a CBDC - it gives you a seat at the table when norms and global regulations are made.
    - c7b 2y ago
      There's a difference between what you call DPI (which I called payment system) and central bank money. A CBDC is both, Pix and UPI are only DPI sans central bank money (so neither is a CBDC). My point is that you can get all of the benefits of having DPI without needing to incur any of the headaches that come with central bank money (financial stability risks, holding limits, private sector opposition,...). I'm all for DPI, I'm just questioning the bundling with central bank money.
      - alephnerd 2y ago
        I agree with your skepticism about CBDC, but it takes little to no effort to implement your own CBDC, and in the small chance that they did somehow take off, then you have a platform you can export to other countries. > I'm just questioning the bundling with central bank money In most countries excluding the US, EU, UK, and Canada, the Central Bank also sets financial regulations and provides the infra backbone for fintech, and in some cases still own commercial banks. By having central banks attached to these projects, it helps build a testbed so private sector players can then extend on. Most countries aren't like the US where private sector investors are open to investing in innovations, so it would fall to the Central Bank to begin testing and implementing these products.

by c7b 2y ago

alephnerd 2y ago

> most major central banks (that are considering it at all) are considering doing so in the form of CBDCs Other than the EU and UK, which other major CB is considering CBDCs alone? Numerically, most people I know in the space are heavily motivated by the Digital Public Infrastructure (DPI) model both India and Brazil have been using, and DPI has been a hot topic in the DevEcon space for 4 years now. In fact, Indian and Chinese lobbyists now compete with each other across Africa for DPI related infra work (Biden admin even helped support India's evangelism of the Indian DPI model in ASEAN and Africa), and Brazil's Pix has seen significant uptake in Argentina and Uruguay. And most regional economies like Vietnam, Pakistan, Nigeria, and South Korea have similar implantations The big difference might be public versus private domain experience. In newer economies like BRICS and much of ASEAN, the infra and norm setting work fell onto regulators. But in more developed economies like the US, UK, or EU, similar developments could be done by the private sector.

c7b 2y ago
> Other than the EU and UK, which other major CB is considering CBDCs alone? The ones I mentioned, eg, Canada [0], China [1]. But it's really most of them [2], the US is rather the exception. [0] https://www.bankofcanada.ca/digitaldollar/ https://www.bankofcanada.ca/digitaldollar/ [1] https://en.wikipedia.org/wiki/Digital_renminbi https://en.wikipedia.org/wiki/Digital_renminbi [2] https://cbdctracker.org/ https://cbdctracker.org/
- alephnerd 2y ago
  China has backed UnionPay since the mid-2000s - the backbone is similar to that for UPI and Pix. And most of the countries on that list are either implementing their own payment infra or leveraging India, Brazil, Russia, or China's. It doesn't hurt to have a CBDC - it gives you a seat at the table when norms and global regulations are made.
  - c7b 2y ago
    There's a difference between what you call DPI (which I called payment system) and central bank money. A CBDC is both, Pix and UPI are only DPI sans central bank money (so neither is a CBDC). My point is that you can get all of the benefits of having DPI without needing to incur any of the headaches that come with central bank money (financial stability risks, holding limits, private sector opposition,...). I'm all for DPI, I'm just questioning the bundling with central bank money.
    - alephnerd 2y ago
      I agree with your skepticism about CBDC, but it takes little to no effort to implement your own CBDC, and in the small chance that they did somehow take off, then you have a platform you can export to other countries. > I'm just questioning the bundling with central bank money In most countries excluding the US, EU, UK, and Canada, the Central Bank also sets financial regulations and provides the infra backbone for fintech, and in some cases still own commercial banks. By having central banks attached to these projects, it helps build a testbed so private sector players can then extend on. Most countries aren't like the US where private sector investors are open to investing in innovations, so it would fall to the Central Bank to begin testing and implementing these products.