How will central bank digital currency impact ATMs?

Cryptocurrency has been a hot topic for several years now, especially as governments examine it closely and utilize it. Recently, there has been widespread interest with central banks making their own digital currencies. China in particular has announced its digital yuan, but other countries ranging from the U.K. to the U.S. have also invested into this technology.

What does this trend mean for the ATM industry? Will it impact cash usage? That was a topic panelists discussed during a panel talk at ATMIA, being held Feb. 7-9 in New Orleans, Louisiana.

David Tente, executive director of USA, Canada and the Americas, ATMIA, moderated the discussion with William Suriano, general counsel and manager, Bitcoin of America, Peter Kulik, VP of technology, FTCI Inc. and David Lott, payments risk expert, Federal Reserve Bank of Atlanta.

Tente led off the panel by discussing how central bank digital currency has become a hot topic — it has even been featured on shows such as Fox New's Tucker Carlson. But there are many questions that come to mind such as, "Can I take it out of my bank? Can I take it out as cash at an ATM?"

"Everything is kind of hypothetical at this point of time," Lott said.

Suriano agreed that at the moment what the architecture of CBDC will be is "pretty nebulous at this point."

When looking at the background of CBDC in the U.S., Lott spoke about how the Federal Reserve worked with MIT Digital Currency Initiative on the Hamilton Project to make an open source CBDC. This program was successful and could handle 1.8 million transactions per second.

In addition, last year, the Federal Reserve released a primer on the pros and cons of CBDCs.

Suriano said that with this program, "compliance, fraud controls were not addressed."

This creates issues, as Kulik pointed out that a centrally backed digital currency would be under attack from, "bad guys from day one."

When it comes to whether CBDC would replace cash, the panelists were not convinced.

Lott for example said customers already use digital currency in the form of their bank accounts and those customers still get cash from ATMs, Lott said.

"ATMS are most cost effective to exchange that form [bank account] of digital currency for cash. ATMs will continue to be that way for CBDC," Kulik said.

"We have seen cannibalization of cash, that's going to continue as more and more small dollar transactions will be 'electronified', but cash is going to stick around," Lott said. "In the mid 70s, there was talk of cashless society and 50 years later, cash is still around."

When discussing if CBDC would bring about more financial inclusion, the panelists were skeptical.

Suriano said governments could use CBDCs like food stamps and in turn restrict how poor people could use that currency.

There's also the issue of how effective this would be with poorer communities, since if it requires a smartphone, Lott said only 80% of households that make $30,000 or less a year have smartphones.

Another issue is on the bank side of the equation, as banks have written the Federal Reserve with concerns on whether the currency would undercut their deposit base, Lott said.

Regardless, Lott said he doesn't see a decision being made anytime soon on CBDC in America.

For example, Jerome Powell, chairman of the Federal Reserve, said the reserve would not move forward without legislative and executive support, Lott said.

As a result, Lott doesn't see a decision being made for about five years.

As to other countries that have adopted CBDCs, most are developing countries that have issues with payments systems that other countries like the U.S. does not have, Lott said.

Lastly, there is still the privacy concern.

Suriano said a study of Europeans showed "46% of Europeans were worried about privacy with CBDC. Cash gives ultimate privacy."

"It's not going to happen overnight," Lott said. "There are so many questions that need to be addressed."