Mastercard and Central Bank Digital Currency

American multinational financial services corporation made an interesting announcement on Wednesday. According to this announcement, Mastercard released a proprietary tool targeted to central banks that would like to test their Central Bank Digital Currency or CBDC.

Interestingly, more than 70% of central banks are exploring the idea of digital currency in some form based on the report published by the Bank of International Settlements. However, only several central banks moved into actual concept and experimentation. 

It is worth noting that, Mastercard plans to make testing simpler. The tool developed by Mastercard simulates various types of transaction environments to let central banks evaluate CBDC use cases. Moreover, it mimics the issuance, distribution, as well as exchange of CBDC’s between banks. Also, not only between banks as it covers financial services companies and consumers.

Mastercard and new opportunities

Mastercard called its partners to use the platform to evaluate the effectiveness of CBDC’s technological designs. Partners also have the opportunity to evaluate the proposed use cases as well as interoperability with existing payment methods. 

It is worth mentioning that, one of the possibilities of the virtual sandbox is directly connected to Mastercard. The virtual sandbox can demonstrate how a consumer can use CBDC to pay for goods and services anywhere Mastercard is accepted around the world. 

Importantly, Central Bank Digital Currencies would allow central banks a direct bridge to consumers. Central banks will be able to avoid commercial banks when it comes to distributing and collecting money. However, some designs focus only on institutional money transfers. The platform developed by Mastercard covers both of them.

Interestingly, Mastercard works actively with various types of distributed ledger technology, including an initial commitment to the Libra consortium in 2019. However, the American financial services corporation left the association due to regulatory headwinds. 

Central banks should use this tool to learn more about the advantages and disadvantages of CBDC.