Emerging Digital Currency Model Requires the Right Infrastructure

How financial services firms can leverage digital infrastructure and industry ecosystems to launch central bank digital currencies

Gareth Bridges
Lance Homer
Adrian Mountstephens
Emerging Digital Currency Model Requires the Right Infrastructure

Central bank digital currencies (CBDCs) have the potential to revolutionize how we transact using money. In this article, we’ll explore how financial services firms can leverage digital infrastructure and dense industry ecosystems to support this new form of digital payments across the globe.

Constant media attention (pro and con) has elevated cryptocurrencies to mainstream awareness. While it is possible to use Bitcoin, Ethereum, USnDT and thousands of others as a currency, they are far from replacing traditional exchanges of value and are mainly held as an asset by most users.

As one of the most recent entrants to this sector, CBDCs have not received as much attention as cryptocurrencies. However, their role in the movement of money may someday be part of peer-to-peer and retail transactions, as well as international trade. CBDCs are digital versions of the currencies that are currently issued as notes and coins. More than 100 countries, representing over 95% of the global GDP, are exploring a CBDC to increase the efficiency and stability of their digital payment systems. Ten countries have fully launched digital currencies, including Nigeria in 2021, Africa’s largest economy. China’s extensive pilot, with millions of citizens, is set to expand in 2023. As CBDCs move from planning to testing and eventually into full production, it is important that central banks and other government agencies prepare their IT infrastructure for global acceptance.

Enterprise leaders are observing and monitoring this progression of digital currencies, exploring use cases for how to incorporate them into their business models and considering the potential risks. According to Gartner®, “A September 2021 survey of 251 CFOs and other finance leaders revealed that 47% intend to assess digital currencies for business in 2022.”[1] That’s just the start: Gartner® also reported that “Twenty percent of large organizations will use digital currencies for payments, stored value or collateral by 2024.”[2]

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Potential competitive advantages of central bank digital currencies

While CBDCs are in the early stages, including exploration, piloting and launch, this form of digital currency could introduce advantages over others once the infrastructure and systems are established:

  • Enable borderless, multi-currency transactions
  • Establish auditable and traceable transactions
  • Help prevent illegal transactions such as money laundering
  • Facilitate tracking of taxable economic activities
  • Expand access to formal financial systems for those without bank or credit card accounts
  • Maintain the relevance of retail money as digital payments become the norm
  • Reduce the cost of international remittance

Central banks must take a broader view beyond the traditional methods used for issuing fiat currency, which have mostly been siloed. Establishing international standards will be critical, given the different CBDC models created by individual central banks.

Once central banks build, design and articulate how their CBDCs will work, they will need new solutions that connect them with industry partners and ecosystems like financial institutions, payment processors, foreign exchanges, cross-border multi-currency payment platforms, fintech companies, digital wallet providers, and cloud, network and internet service providers. There will be opportunities for central banks to participate in related ecosystems as the digital currencies market develops and interoperates with other financial services and trading ecosystems.

Building a foundation of digital infrastructure

More than 100 countries, representing more than 95% of global GDP, are exploring a CBDC to increase the efficiency and stability of their digital payment systems."

In order for the digital currencies market to function on a global level, incorporating the building blocks of digital infrastructure will be a key component for success. Fortunately, this will not be a path of discovery: cryptocurrency exchanges, foreign exchange trading platforms and card networks have already blazed the trail of deploying digital infrastructure to support their global business models of moving money and going between different currencies.

Participants in the global CBDC ecosystem require infrastructure that includes both virtual and physical components to connect them securely and privately to the industry partners and companies that support their business models. For example, it will be relatively easy to exchange digital currency between wallets in a single country; but to send money to another country while complying with international regulations, the payments will need to be processed through a bank, then a foreign currency exchange and then a payment network. This requires an extensive digital infrastructure framework.

By deploying on Platform Equinix®, digital currency organizations get access to our rich financial services ecosystem of  customers, including trading, foreign and cryptocurrency exchanges, central banks, payment processing providers, real-time payments platforms and other related companies such as network, cloud and IT service providers. The Equinix global footprint includes PoPs in the top global financial centers, including New York, London, Singapore and Tokyo. Our portfolio of digital services can help digital currency companies meet the demands for low latency, data sovereignty and cross-border transactions.

To learn more about how companies are deploying digital infrastructure, read the Leaders’ Guide to Digital Infrastructure.

 

[1] Gartner Press Release “Gartner Says Nearly Half of Finance Leaders Plan to Assess Digital Currencies for Business in 2022,” Published October 12, 2021.

[2] Gartner Press Release “Gartner Says 20% of Large Enterprises Will Use Digital Currencies by 2024,” Published December 16, 2021.

Disclaimer: GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.

 

The Equinix customer base includes a rich financial services ecosystem of trading, foreign and cryptocurrency exchanges, central banks, payment processing providers, real-time payments platforms and other industry-specific companies."
Gareth Bridges
Gareth Bridges Director, Digital Business at Equinix
Lance Homer
Lance Homer Global Head of Strategy for Electronic Payments
Adrian Mountstephens
Adrian Mountstephens Business Development Senior Manager
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