There is understandable caution about the potential of central bank digital currencies (CBDCs) amongst treasurers. But Britta Dottger, head of treasury and finance at pharmaceuticals group Roche, suggests they may offer an opportunity to better align the world’s financial system with the realities and challenges businesses face.
“The future of money can be potentially rewritten now in a way that enables new customer centric business models with financial inclusion and fit-for-purpose considerations at its core,” Dottger says.
“CBDCs, among others, may provide significant value to corporates and societies by allowing more timely and seamless collaboration across central banks, countries, corporates and individuals. Payments and settlements of financial transactions could be faster, safer, less error prone and at reduced costs.”
Dottger is clear, however, that several major hurdles will need to be overcome for CBDCs to achieve their true potential.
Thoughtfully designed CBDCs are “absolutely needed” and will be crucial for them to succeed in successfully rejuvenating the financial system, she says.
Key too will be effective collaboration among central banks, commercial banks and other participants in the digital currency ecosystem.
Such major hurdles are well recognised by major bodies such as the Bank of International Settlements (BIS) which warned in a landmark report on CBDCs earlier this year that central banks face major decisions regarding interoperability and cross-border usage if they are to fulfil their potential.
Over 100 countries have active CBDC projects ranging from the research stage through to the 10 projects which have officially launched, according to the Atlantic Council’s CBDC tracker. Of those, 50 countries are in an advanced phase of exploration – development, pilot, or launch.
The BIS report, however, warns that a lack of early-stage coordination and cooperation between central banks working on CBDCs could stymie their development.
The study also stresses that CBDC design must consider cross-border functionality at an early stage and international cooperation and coordination are prerequisites to success.
The rewards from getting their development right, however, could be very handsome, not least for treasurers, Dottger believes.
As well as speedier transaction processing, greater transparency and lower costs, CBDCs could release treasuries from monitoring and managing credit limits of counterparts and so make daily treasury life easier, she says.
“Depending on the design and characteristics of CBDCs, CBDCs could join business transactions as cash on chain and automatically execute smart contracts, including payments and book entries in the individual ERP system of respective business partners,” she adds.
“Saving resources in reconciliation and admin workspaces will allow us to focus on innovation and value creation to the benefit of societies.”
Dottger says that at Roche they are always curious and interested in exploring and experimenting with new technologies that could help solve business challenges.
After developing its treasury organisation successfully in terms of standardisation, automation and efficiencies over the last decade, Dottger and her team believe the next big value contribution will come from close collaboration and co-creation with its business units and external business partners.
“Currently, we are engaged in a blockchain pilot with our procurement colleagues and a number of volunteer suppliers to explore the potential of enhancing contract management end-to-end,” she says.
“The world and the ecosystems that we operate in as a company are changing constantly and at an ever-increasing speed. In treasury, time has always been of critical essence, and we cannot afford to stand still.”
On the chain
Dottger says that as a community, treasurers are only just beginning to build knowledge around the area of CBDCs, and that this lack of knowledge is a hurdle in itself that will need to be overcome.
She also believes that while it will take time yet for central banks to launch their CBDCs, a clear, coherent vision and statement of purpose behind why they are doing it will be a key factor determining their success.
“That is really important as it will most likely find its way into the characteristics of each CBDC, determining use cases, and whether or not business necessities like interoperability, programmability, and reducing complexity and manual work can be addressed.”
Roche is already working on ideas for how to establish ‘Money on Chain’ -transactions that are recorded and verified on the blockchain – to support its business in the best way.
“Overall, though, I think it is hard to predict what adoption of CBDC may look like in the future – there are too many unknowns, and the time horizon for central banks to launch CBDCs is too far out.
“A great deal of innovation will happen between now and then, but ultimately, adoption of any kind will be driven by the acceptance and usefulness of CBDCs.”