Recently, G7 officials broadcast a joint statement noting that CBDCs would complement cash and that any such payment system should follow a series of principles they laid out. The statement, they indicated, was a place for sovereign nations to begin as they developed policy and designed the technological pieces necessary for a digital currency launch. Perhaps most notably, the statement indicated that CBDCs must “do no harm to the ability of central banks to fulfill their mandates for monetary and financial stability.”
“I’ve been saying, for years, that regulatory bodies needed to wrap their arms around the concept of digital assets. In order to regulate something, you need to first understand it, both theoretically and practically. Once the regulators understand it, they need to put together common sense guidance that protects the citizenry from bad actors while allowing innovators to do what they do best: innovate,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.
“In essence, those same principles exist when deciding what a CBDC should look like. There needs to be a certain standard of privacy for users. In the United States, Senator Lummis has noted this on multiple occasions. CBDCs shouldn’t be an authoritarian power grab to allow the government access to every penny spent by its citizenry,” Gardner said.
“In addition, before a central bank can even begin to think about releasing a CBDC to the public, they need to have their technological infrastructure buttoned up. Before the beta test even begins, the cybersecurity aspects surrounding the program must be on point. Of course, the beta testing will allow you to fix any vulnerabilities with the proposed technology, but we must build out a CBDC program beginning with security at its core, rather than as an afterthought. Any logical human would conclude the same thing. There’s nothing surprising here,” said Gardner.
“Notably, they also considered how CBDCs would be energy efficient, and I think that’s an area where the industry needs to spend some time, perhaps even in partnership with some of the great minds in sustainability. If you look at how the private sector has come to view sustainability over the past decade, I think there’s already a roadmap in place. The idea is to look at ways to make the business case to be sustainable. Once we flipped the script and looked at it through that lens, there was a great deal of ingenuity that truly transformed business models. There’s no reason that we can’t build the business case for CBDCs with that sustainable vision in mind,” noted Gardner.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the industry’s most profitable digital asset exchanges, including a well-known multi-billion-dollar cryptocurrency exchange. Over the past twenty years, the company has built technology for the world’s most notable institutions, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
“You’re going to want the regulators in on this, you’re going to want innovators who understand the technology… but the citizenry is also going to want the transparency advocates to have a seat at the table. There needs to be a clear understanding of what privacy expectations users can have and how information will be used. Perhaps even more importantly, how will it be secured? And, what are the steps if there is a data leak? Those are all important questions to ask as central banks develop their programs,” noted Gardner.
