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Most central banks see potential value in having both a retail central bank digital currency (CBDC) and a fast payment system, a new paper by the Bank for International Settlements (BIS) finds.
Ninety-three percent of the central banks are being engaged in some form of CBDC work and there could be 15 retail and nine wholesale CBDCs publicly circulating in 2030, the results of a survey of 86 central banks show.
There are several reasons central banks are investigating CBDCs, but top of the list is to create a general-purpose digital currency that improves payments efficiency and payments safety.
Payments efficiency was listed as high despite the fact that more than 70 percent of the jurisdictions covered in the survey have a fast payment system and 18 percent plan to launch one.
A fast payment system and a retail CBDC may have very similar objectives.
Both can enhance financial inclusion, and promote faster and more efficient domestic and cross-border payments.
They can enable broader innovation and enhanced competition, which can increase the availability and accessibility of cheaper payment products and services. The BIS says this can also support a more resilient payments ecosystem.
But the BIS says that most central banks see value in having both a retail CBDC and a fast payment system, which they mostly see as complementary.
“More than 80 percent of central banks think that, in principle, there may be value in having both [a fast payment system] and a CBDC,” according to the paper.
Central banks argue that a CBDC has specific properties and may offer additional features, such as being a riskless form of digital money and allowing access to a wider set of financial institutions and the unbanked population.
They also highlighted programmability and offline payments as features that a fast payment system may not provide.
About 9 percent of central banks that see value in having both instruments believe that this could benefit the efficiency and resilience of the payments market.
Depending on the design of each, several central banks believe that a fast payment system and a digital fiat could complement one another; for example, when targeting different use cases or offering additional services.
“This underlines the importance of ensuring interoperability with existing payment systems to be sure that payers and payees can seamlessly make and receive payments, regardless of the payment method or service provider,” the BIS says.
The paper notes, however, that a fast payment system and a digital currency are fundamentally different in the sense that CBDCs are central bank money, while faster payments involve commercial bank money.
The BIS paper comes as large economies such as the EU and UK have recently made progress in their work related to a digital fiat.
In March, the Bank of England (BoE) and HM Treasury launched a consultation on the digital pound.
Shortly afterwards, BoE deputy governor Jon Cunliffe told MPs that the UK is more likely to have a digital pound than not and that research must be done now so that the country can move quickly when a definite decision is made in the future.
This was echoed on Tuesday (July 10) by BoE governor Andrew Bailey, who emphasised that the UK “must avoid a failure of imagination”.
“Inability to specify a very precise detailed use case today is not a good reason to believe there will never be one,” Bailey said.
In late June, the EU also unveiled its long-awaited Single Currency Package to set out a framework for the possible digital euro to “complement but not replace” cash.
The US Federal Reserve published a discussion paper on the policy questions related to the digital dollar in early 2022 and research regarding technical issues is ongoing at the Reserve Banks of New York and Boston.
However, research and policy discussions regarding a CBDC in the US are lagging behind the EU and UK.
US policymakers have traditionally been more reluctant to pick up the issue and recent challenges at the Fed, such as the collapse of Silicon Valley Bank and the high inflationary environment, may have further halted the process.
The digital dollar has been also caught up in the ongoing campaigns of presidential hopefuls Ron DeSantis and Robert F Kennedy Jr, who have both relied on public distrust in a digital dollar to gather more political capital in their bid to become the next President of the United States.
As the topic of a digital fiat is becoming more and more political it is unlikely that US policymakers would push for issuing a CBDC in the short term.
However, once the first large economies, such as the EU or the UK, issue their own digital cash, the US will likely follow suit, Scott Talbott, senior vice president of government affairs at the Electronic Transactions Association, told VIXIO.
At present, policymakers in each of the EU, UK and US insist that no decision has been made yet on whether to issue a CBDC or not.
