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Visa Sketches a Global Network of Central Bank Digital Currencies With Itself at the Center

You may never be able to send a message from Telegram to a friend on WhatsApp, but you might be able to send dollars from a digital wallet issued by the U.S. Treasury to a wallet from the People’s Bank of China, only the recipient will receive the payment in yuan.

That’s the vision that the payments network Visa articulated in an announcement today. The credit card giant wants to enable central bank digital currencies (CBDCs) to play nicely together.

“We believe that for CBDCs to be successful, they must have two essential ingredients: a great consumer experience and widespread merchant acceptance,” Catherine Gu, wrote in Visa’s announcement. “It means the ability to make and receive payments, regardless of currency, channel, or form factor. And that’s where Visa’s UPC concept comes in.”

Gu leads the company’s efforts around CBDCs, which represent a vision for state-backed currencies to take advantage of some of the efficiencies offered by blockchain technology while still maintaining a state monopoly on money. 

Technology Stacks

Visa operates in over 200 countries and has 3.4B cards in the market. It stands to reason that if Visa asserts that CBDCs are likely to be widespread, it’s operating from a better informed position than the general market.

In Gu’s post, she predicts that different nations will choose to operate on different technology stacks for different reasons. So Visa proposes what it calls a Universal Payment Channel to give those different stacks a way to interoperate. 

Payment channels are a way to take many transactions off Layer-1 blockchains so that value can be transferred more quickly and with lower fees. The Bitcoin Lightning Network is probably the most well known payment channel system, but channels can also be used to cross blockchains or other payment systems.

If CBDCs opt in to Visa’s standard, it could become much easier and less expensive to transact with people in other countries. In fact, in Visa’s research paper on UPC it even discusses making a cross-border transaction with fewer intermediaries. 

Regulated Digital Currencies

“The sender may self-custody her funds by storing secret keys locally and authorizing her wallet provider via a digital signature to initiate an XBP [cross border payment],” the paper says.

The idea that a user can ever truly self-custody value under a CBDC system is likely to be met with skepticism by longtime cryptocurrency advocates.

But the paper also articulates a second use case: making it easier to invest in and trade cryptocurrencies But there is a catch: “With the combination of scalability and interoperability features that the UPC technology provides, UPC hub can be a bridge connecting regulated stablecoins with CBDCs in the future. We envision that the development of this technology will significantly expand the utility of digital currencies.”

That this seems to envision a future in which the UPC is also only usable by regulated digital currencies will also likely raise eyebrows. 

That said, Visa posted some code for feedback by developers, and that code is a smart contract running designed for Ethereum.