Mastercard debuts virtual testing platform for central bank digital currencies

Last modified September 9, 2020. Published September 9, 2020.

With the global shift to digital currency options accelerating due to the conditions brought on by the coronavirus pandemic,  said Wednesday that it engineered a new platform for central banks to test the potential for national digital currency systems.

U.S.-based Mastercard said that its proprietary virtual testing environment will enable central banks around the world to simulate the distribution and exchange of central bank digital currencies between banks, financial service providers and consumers. The simulations will allow these central banks to evaluate the potential suitability of CBDCs within their respective regions.

Central banks have looked into adopting digital currencies for numerous reasons, ranging from “fostering financial inclusion to modernizing the payments ecosystem,” said Raj Dhamodharan, Mastercard executive vice president, digital asset and blockchain products and partnerships.

Banks can issue CBDCs as a digital representation of a country’s fiat currency, as they are meant to be equal in value to a nation’s paper currency and will be subject to the same government-backed guarantees.

A recent survey by the showed that, even before the pandemic hit, central banks worldwide were exploring the potential for digital currencies. Of the 66 central banks surveyed, about 80% said they were engaging in CBDC-related work, with 40% beginning experimentation and 10% having entered pilot projects. 

The crowd has been led by China, which is planning to test its “digital yuan” with hundreds of millions of people through large-scale trials with major banks and companies and is poised to release it publicly before it hosts the 2022 Winter Olympics.

Central banks in the survey cited domestic and cross-border payments efficiency and the potential for greater financial stability and financial inclusion as reasons for potentially issuing a general-purpose CBDC. 

The BIS survey, however, noted that 70% of the banks surveyed see themselves as unlikely to issue any type of CBDC in the near future, with statistics indicating that more research and experimentation would be necessary.

Mastercard said that it looks to “harness its expertise to enable the practical, safe and secure development of digital currencies,” which may lead to a faster adoption of CBDCs for those central banks.  

The platform will allow for participating central banks to simulate CBDC issuance and see how it would interact with existing payment structures, demonstrate how that currency would be used by consumers, examine CBDC technology design options, and evaluate the overall CBDC development effort.

“Mastercard is driving innovation with the public sector, banks, fintechs, and advisory firms in the exploration of CBDCs, working with partners that are aligned to our core values and principles,” Dhamodharan said. “This new platform supports central banks as they make decisions now and in the future about the path forward for local and regional economies.”

The technical support being offered by Mastercard will better enable banks to understand the potential of CBDCs, said Sheila Warren, head of blockchain, digital assets and data policy at the World Economic Forum.

“Collaborations between the public and private sectors in the exploration of central bank digital currencies can help central banks better understand the range of technology possibilities and capabilities available with respect to CBDCs,” Warren added. “Central banks can benefit from support in exploring the option set available to them with respect to CBDCs, as well as gaining insight into what opportunities may be forthcoming.”

--Additional reporting by Zack Fishman