From cryptocurrencies to CBDCs featured image

From cryptocurrencies to CBDCs

By Chaesub Lee, Director, Telecommunication Standardization Bureau, ITU

Money as we know it is transforming. Digital currency offers promising ways to make transactions more secure and cost-effective. It has great potential, also, to boost financial inclusion for the unbanked.

Technical standards developed by the International Telecommunication Union (ITU) can help us tap into this opportunity on a global scale.

Why standards matter

Standards can enable the security and interoperability that are needed for digital currency to earn our trust and make a meaningful difference to our daily lives. But successful standards are built by iteration and consensus.

Standards development, therefore, needs to be influenced by all players in the ecosystem – all the communities and organizations that will come to rely on the resulting standards.

Herein lies the value of the inclusive dialogue of the DC3 Conference, as well as the inclusive pre-standardization studies supported by the Digital Currency Global Initiative.

This initiative – launched by ITU and Stanford University in 2020 – provides an open platform that brings everyone together on this timely topic. It enables discussions about the new opportunities and risks introduced by digital currencies, along with the far-reaching technology, business, and policy implications.

The initiative helps to share experiences with digital currency applications, benchmark best practices, and develop specifications to be tested and proven in the market as they feed into ITU’s development of technical standards.

The annual DC3 Conference will highlight progress in standards development for digital currencies. Furthermore, it aims to facilitate the sharing of insights from around the world on emerging industry trends and pilot digital currencies, including central bank digital currencies (CBDCs).

Foundational work

ITU – the United Nations specialized agency for information and communication technologies (ICTs) – is uniquely positioned to foster widely accepted international standards. We are the only UN agency whose membership includes private-sector companies and the only ICT standardization body with a membership that includes governments. 

The Digital Currency Global Initiative builds on a substantial body of prior work, including the findings of an ITU Focus Group on digital financial services, the Financial Inclusion Global Initiative, and an ITU Focus Group on digital fiat currency. Most of all, it continues the research and dialogue set in motion by the ITU Focus Group on digital fiat currency, active from 2017 to 2019.

This last group detailed key requirements for CBDC introduction, in terms of regulation, technical and business dynamics, and security. It outlined recommended design principles for CBDCs as well as a reference architecture for CBDC implementation for retail, wholesale, and cross-border payments.

Over the two years the focus group was active, over 60 central banks – or all of those forming the membership of the Bank for International Settlements – reportedly launched investigations into CBDCs. 

The group’s work reflected diverse collaboration among tech, banking and financial technology (fintech) experts. As interest in the topic grew, the focus group offered central banks a venue to find expertise for their digital currency investigations.

Broadening scope, building trust

The Digital Currency Global Initiative, while carrying on this vital work, has broadened the scope to encompass all types of digital currency. The current initiative spans three working groups: one for architecture, interoperability and use cases; another studying policy and governance questions; and another focused on security and assurance.

All three aim to identify where technical standards are needed for digital currencies, helping to ensure that ITU standards meet those needs.

Collaboration among different standards bodies will play a role in ensuring comprehensive standardization solutions for digital currencies.

I look forward to our continued work to bring trusted digital currency to everyone around the world. 

Based on Chaesub Lee’s opening remarks at the DC3 conference: From cryptocurrencies to CBDCs.

Image credit: Shutterstock

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