Mastercard unveils virtual CBDC testing environment

Written by Ruby Hinchliffe
14th September 2020

Mastercard has unveiled a virtual testing environment for the running of central bank digital currencies (CBDCs).

Banks can use the environment to evaluate CBDC use cases. It can simulate the issuance, distribution and exchange of CBDCs between banks, financial service providers and consumers, according to a statement issued by Mastercard.

It seems the card issuer giant is using the environment to put itself at the centre of the CBDC partner ecosystem. The statement invites central banks, commercial banks, and tech and advisory firms to collaborate in the environment.

Mastercard wasn’t always pro-CBDCs, with its CEO previously voicing his concerns around the concept

The CBDC race

Roughly 70% of the world’s central banks are exploring the possibility of a digital currency, according to a Bank of International Settlements (BIS) report.

But a lot few have moved to an actual concept and experimentation, largely because it is uncharted territory for these institutions.

Hence why an environment like Mastercard’s could help push more of this 70% into the experimentation stage.

Countries currently leading the way in CBDC experimentation include China, Lithuania, France, Sweden, and the Bahamas. Of these countries, China is looking like a likely front runner in the race to deploy a nationalised digital currency en masse.

Several banks are also building concepts around their own digital currencies – including Sberbank and Raiffeisen Bank International (RBI).

What Mastercard’s virtual sandbox looks like

Mastercard lists four main use cases for what will essentially act as a virtual sandbox. As well as simulating a digital currency in practice between banks and consumers, it can also integrate with existing payment structures – it cites cards and real-time payments as examples.

A more interesting use case it cites is that of “allowing a consumer to pay for goods and services anywhere Mastercard is accepted around the world.”

This points to Mastercard trying to position itself in a future payments ecosystem, just as it has tried to do in open banking with the acquisition of Finicity.

The other two points explore different technology designs and the “technical build” of these designs.

What does the industry think?

Mastercard wasn’t always pro-CBDC, with its CEO previously voicing his concerns around the concept.

“This idea of finding a way to have national control on certain kinds of payments is not new — it’s a fantasy that’s been going on for a long time,” Ajay Ba told Coin Telegraph in February.

But the card issuer giant did jump on the Libra bandwagon momentarily, and this unveiling compliments its digital currency efforts, as Konstantin Richter, CEO of Blockdaemon, points out.

“Mastercard’s testing platform complements private stablecoin projects, such as Libra,” says Richter. “It not only propels forward wider adoption, but also bridges the gap to new and better ways of doing business for the future of finance.”

Nicholas Pelecanos, NEM’s trading head, thinks Mastercard’s move into CBDC projects “makes sense” and calls it “forward thinking” for the payments giant.

“While I predict that this move will prompt more governments to follow suit, what will be interesting is whether these currencies will be designed to respect our freedoms and rights,” Pelecanos adds.

By that, he means will Mastercard’s environment promote the “true to the original ethos of crypto” or will it “be used as a means of asserting control and surveillance”.