Consensus Builds For CBDC In 2021

January 5, 2022
In one way or another, most central banks have now come to an affirmative decision on taking fiat money into the digital sphere. However, apart from a few stand out launches and trials, the prospect of a central bank digital currency (CBDC) in some of the world’s largest economies still looks to be a long way off.

In one way or another, most central banks have now come to an affirmative decision on taking fiat money into the digital sphere. However, apart from a few stand out launches and trials, the prospect of a central bank digital currency (CBDC) in some of the world’s largest economies still looks to be a long way off.

In 2019, when one source in Sweden dismissed the central bank's plans for an e-krona as “a fad”, CBDCs were still very much a fringe issue.

Fast forward three years later and the world feels a very different place. Anxieties about monetary sovereignty, the rise of private cryptocurrencies and increasing digitalisation of economies accelerated by COVID-19 has meant that CBDCs have become a hot topic and key policy interest for central banks.

During Summer 2021, both the G7 and G20 agreed to principles for their regulatory approach to CBDCs and private actors, such as stablecoins.

Throughout the year, VIXIO reported on some of the most important developments as it became increasingly clear that consensus was starting to build among central bankers as to the merits of a CBDC.

Wind In Their Wholesales

There are two types of CBDC uses for central banks to explore: wholesale and retail.

Wholesale CBDCs use the existing tier of banking and financial institutions to conduct and settle transactions. These types of CBDCs are just like traditional central bank reserves. Retail CBDCs on the other hand involve the transfer of central government-backed digital currency directly to consumers.

Arguably, most progress and activity in 2021 was made within wholesale CBDC projects. In particular, it is increasingly being touted as a possible answer for cross-border payment pangs.

Much of this work was led by the Bank for International Settlements (BIS) and the Banque de France.

For example, towards the end of 2021, the two institutions, alongside the Swiss National Bank, concluded Project Jura, declaring that wholesale CBDCs can be used effectively for international settlements between financial institutions.

The Banque de France has also worked domestically on the issue with platforms such as Euroclear. It also completed another wholesale CBDC cross-border experiment in partnership with the Monetary Authority of Singapore.

The experiment, which was supported by J.P. Morgan’s Onyx, simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a common network between the two jurisdictions.

Of the four outcomes achieved, the simulation of an experimental m-CBDC network concluded that the number of correspondent banking parties involved in the payment chain for cross-border transactions can be reduced.

Consequently, the number of contractual arrangements, the know your customer (KYC) burden, as well as the associated costs, can also be cut down.


Exploring retail CBDC, China is very much in the driving seat among the world’s largest economies in terms of an actual rollout.

Although still in the trial phase, around 10 percent of the population, or 130m people, now have access to an e-CNY wallet in China.

China’s trial of the digital yuan has included testing in major cities, such as Shenzhen, Beijing and Shanghai.

There are also rumours that the Chinese government will use the Winter Olympics, taking place in Beijing in 2022, as a possible method of introducing its CBDC to a foreign audience. For example, allowing foreign athletes to pay with its e-CNY via a credit card.

Although no official timescale has been offered by the Chinese authorities for a full rollout, the extended trial features four different digital yuan wallet options to support different use cases. One of these wallets will have no limits on the amount that can be transacted.

However, to gain access to this top-tier wallet options, users will need to go through the highest level of due diligence, including opening an account in person at a bank with personal identification.

Central bank officials have further said that less information will be collected via the e-CNY wallets than other digital payment services, with the People's Bank of China not providing information to any third party or other government agencies unless stipulated by the law.


Before 2020, industry voices would have likely speculated that Sweden would be at the forefront of CBDC development on the continent, helping to lay the groundwork for the rest of Europe. Yet, considering the quickly advancing work of the European Central Bank (ECB), this hypothesis is receding.

Sweden was one of the first central banks to announce plans to investigate the possibility of a retail CBDC back in 2017. However, it has still to confirm whether it will pursue a rollout of an e-krona. In its latest statement on the matter in October, the central bank noted one its guiding principles in the pursuit of an e-krona is that it "do no harm", and not undermine monetary policy or financial stability.

In July, after a lengthy wait, the ECB finally agreed to pursue its retail CBDC exploration for a digital euro. Although the ECB’s plan also hangs in the balance, the enthusiasm from both Christine Lagarde (who told the press that a digital euro could be in circulation by 2025) and the digital euro’s project lead, Fabio Panetta, suggests a strong likelihood that the project could come to fruition.

ECB officials are, however, divided in terms of how a CBDC could be introduced in the eurozone economy and minimise disruption. In February, Panetta, who is leading the project, suggested a limit of up to €3,000 could be set on how much of the digital euro consumers could hold.

This, he felt, could avoid it becoming an investment opportunity, and thus circumventing the EU’s financial institutions.

Yet, Ulrich Bindseil, the ECB’s director-general for market infrastructure and payments, told a conference in June that he felt it is better to focus on interest rates than capping the number of digital euros that a citizen can hold.

In January 2021, the ECB reached out to the wider public to help them shape the design of a future digital euro. Its public consultation triggered record responses from 8,221 people, whose primary concern was that any prospective digital euro protected their privacy.

Going into 2022, the ECB plans to establish an expert group to aid in the technology side of the project, alongside the already assembled market advisory group.

Announced in October, it includes significant voices in the payments and banking world, such as Diederik Bruggink of the European Savings and Retail Banking Group and the European Payments Council’s Etienne Goosse.


In November, John Glen, the UK’s treasury minister, announced that the UK’s central bank and HM Treasury will be opening a consultation on the possibility of a UK CBDC in 2022.

Following this, a decision will be taken on whether to move into a subsequent build and testing phase, which could likely take several years and could involve the development of large-scale prototypes and live pilots.

In September, the Bank of England also established its CBDC engagement forum.

This included a variety of representatives from institutions old and new, such as Starling’s Anne Boden, Visa’s Charlotte Hogg, and digital and payments executives from SWIFT, Mastercard and PayPal.

The Diem Association’s Christian Catalini is also part of the forum, in a break with the rest of Europe, whose politicians and regulators have been united in their suspicions regarding the project.


Although central banks like the ECB, Bank of England and the People’s Bank of China could have a systemic impact globally should they issue a retail CBDC, many emerging markets are acting as a petri dish to explore digital currency innovation.

Nigeria became the largest economy to date to issue a CBDC in 2021, with the country’s President stating that it has the potential to grow the economy of Africa’s most populous nation by $29bn over the next decade. That would be equivalent to around a 7 percent boost on 2020's GDP figure. A considerable focus of emerging market development of retail CBDCs has been to support financial inclusion efforts.

Other major economies, such as Australia and Japan, have also made their first significant statements on the potential of issuing a retail CBDC.

Yet, some have been more tentative. Singapore’s financial regulator concluded recently that the case for a retail CBDC is not urgent for the city-state.

Switzerland has also been less than enthusiastic about a retail CBDC. In 2019, its Federal Council dismissed the idea in a report, arguing that it brings more risks than benefits for Swiss citizens.

Instead, it seems likely the nation will put its energy and resources into pursuing wholesale CBDC use cases, such as the December 2020 proof of concept tested by the Swiss National Bank, BIS and trading exchange SIX.

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