During the recent 2021 BAFT Global Payments Conference there were sessions on Central Bank Digital Currencies (CBDC) and Cannabis Banking and Payments. Thinking about it later, I was struck by both the contrasts, similarities, and analogies between these two very disparate topics.
Cannabidiol, better known as CBD, is one of over 100 chemical compounds known as cannabinoids found in cannabis or marijuana plants. CBD is not psychoactive. Cannabidiol is a popular natural remedy used for many common ailments.
A CBDC is an electronic form of central bank money that could be used by households and businesses to make payments. A CBDC uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation (or region).
There is considerable interest in both these products and services—along with a myriad of analysis, research and investigation into the risks and advantages of both. Much research is being done on safe interactions between CBD and other medications …and the same can be said for the safe and secure interaction between CBDCs and existing financial methods of payment.
In the United States, the Food and Drug Administration (FDA) has not yet taken steps to regulate the production of CBD-based products. Although there is not a specific timetable on when or if the Federal Reserve Bank will move forward CBDCs, the Fed is currently working on a joint project with MIT to evaluate the efficacy of a digital dollar. A 2020 survey from the Bank for International Settlements indicated that nearly every central bank in the world did at least some work on digital currencies. (1)
With more ongoing clinical trials of CBDs and proof of concepts for CBDCs underway, there will be an increasing number of success stories, and both these products and services will become more readily available and widely accepted. However, side effects and unintended consequences will also need to be considered.
With any new product or service there are logistical challenges that must be overcome and benefits to be derived. This has manifested itself in use cases for CBDCs and uses for, and of, CBDs.
Some of the challenges for both of these trending items are:
- Complying with their respective regulatory and compliance landscape
- Dealing with Conflicting Laws – The international, state, and federal laws relating to the conduct of these products and related operations varies
- Adhering to data and transaction privacy requirements
- Staying well-attuned with the public’s perception and acceptance of these services
- Keeping in mind the potential disruption of financial transactions
- Managing reputational risks
Some of the benefits of both of these are:
- Accessibility – Consumers will have access to CBDC payments frameworks and CBD products
- Boosting financial inclusion and promoting general well-being of affected populations
- Reduction of the underground economy and illicit cash transactions
- Stress and anxiety reductions in their respective marketplaces
- Provision of transaction traceability
- Improvement of monetary transactions, without adverse side effects
In a recent CBS 60 Minutes interview, Fed Chairman Jerome Powell when speaking about CBDCs stated, “There are many subtle and difficult policy choices and design choices that you have to make.” (2) I would posit the same could be said for the CBD industry. For both, regulatory certainty, oversight and getting the implementations right are necessary for industry expansion and acceptance.
Only time will tell if these new product and service initiatives will ease existing pain and cure ‘fiscal ills’ and ‘physical ills’.