December 10, 2020
By Tom Wilson
LONDON (Reuters) – Central banks are split over whether to collaborate with the private sector in payments, a think-tank said on Thursday, underscoring questions over the role of finance and technology firms as they work on innovations such as digital currencies.
Over half of central banks expect countries to work with the private sector in building and running payments systems, a survey by the Official Monetary and Financial Institutions Forum (OMFIF), a central banking and economic policy forum, showed.
Yet three-quarters of the banks said it was the state’s job to govern such systems rather than ceding control to the private sector, the survey of 20 central banks and regulators in advanced and developing economies showed.
“It’s up to the central banks to balance how they approach collaboration – whether it’s setting joint projects together … or if it’s more just making sure that what comes to the market is properly regulated,” said Bhavin Patel, OMFIF’s head of financial technology, or fintech.
Demand for quicker, cheaper and more efficient payments is growing, and the trend has accelerated during the shift away from cash under coronavirus lockdowns.
Some private projects, such as the Diem cryptocurrency backed by Facebook, hope to build their own payment networks. Meanwhile, existing digital currencies such as bitcoin, which isn’t overseen by any company, have gained traction in developing economies as payment methods.
Regulators fear any wide use of private currencies could upset global financial systems and erode their control over monetary policy.
German Finance Minister Olaf Scholz this week underlined their concerns towards Diem, formerly known as Libra, saying: “We must do everything possible to make sure the currency monopoly remains in the hands of states.”
Still, central banks are open to working with private companies as they look at issuing their own digital currencies to improve payments.
Bank of England Governor Andrew Bailey said in September there will likely be a role for the private sector in payments.
The OMFIF report was produced with financial and fintech firms including Mastercard, PayPal, Citigroup and Facebook’s digital wallet division Novi, which is part of the group that plans to run Diem.
(Reporting by Tom Wilson; Editing by David Clarke)