.svg)
The Bank for International Settlement (BIS) has published a new report that highlights the rapid spread of central bank digital currency (CBDC) studies and pilot schemes worldwide.
Based on a survey of 81 central banks, the BIS found that nine out of ten central banks are now exploring CBDCs, and more than half of them are currently developing or conducting real-word experiments with them.
Of the banks that are engaged in some form of CBDC work, 70 percent are considering a two-tier model of retail and wholesale CBDCs.
In emerging economies, the most significant motivations for issuing a retail CBDC are domestic payments efficiency, payments safety, financial inclusion and financial stability.
In advanced economies, domestic payments efficiency and safety are the most important motivations, followed by financial stability, which has gained in importance since its previous survey in 2020.
Are they ready for launch?
Globally, more than two thirds of central banks said it is “likely” or “possible” that they will issue a retail CBDC within the next one to six years.
There is also broad consensus as to what this would entail, and to what extent the private sector would be involved.
For example, more than 70 percent of central banks said the retail CBDC they are exploring will be interoperable with an existing payments system, and about 70 percent said the architecture of their CBDC will offer a role for the private sector.
Almost all cited client onboarding and know your customer (KYC) as a private sector role, three quarters pointed to handling of retail payments and more than half said recording of retail transactions.
The share of central banks considering issuing a retail CBDC has increased since the previous BIS survey, with 65 percent in 2021 saying they were considering issuing a retail CBDC over the next one to six years, compared with 58 percent in 2020.
Going wholesale
In contrast, the most important motivation for issuing a wholesale CBDC is cross-border payments efficiency, and this concern is shared equally by advanced and emerging economies.
For example, central banks look to CBDCs to solve long-standing pain points in cross-border payments, such as limited operating hours of current payment systems and the length of current transaction chains.
In emerging economies, financial stability, monetary policy implementation, payments efficiency and domestic payments safety are key motivations to issue a wholesale CBDC. In advanced economies, however, these motivations are relatively less important.
In both advanced and emerging economies, financial inclusion is the least important motivation to issue a wholesale CBDC.
However, it is notable that since 2018, when the BIS conducted its first CBDC survey, financial inclusion has gained in importance as a motivation among emerging economies.
As with retail CBDC, the two biggest differences between advanced and emerging economies on wholesale CBDCs is the importance of financial inclusion and monetary policy implementation in their motivations, neither of which are particularly important for advanced economies.
Concrete steps
2021 was a year of strong growth in the crypto-asset and stablecoin markets, and six out of ten central banks said this growth accelerated their CBDC work.
It also spurred collaboration between central banks to monitor the implications of crypto-assets and stablecoins, and to coordinate regulatory approaches to contain their risks to the financial system.
But perhaps the biggest driver of future progress in CBDCs will be the performance of those that have already launched.
In 2020, the Bahamas launched a live retail CBDC known as the Sand Dollar; in 2021 Nigeria launched the eNaira and the Eastern Caribbean launched a pilot version of DCash as legal tender.
As reported by VIXIO, Latin America is emerging as a hotbed of CBDC research and pilot activity, with a number of key markets planning to introduce a digital fiat in the next couple of years. This is aimed at complementing the fast-growing fintech and e-commerce sectors, as well as addressing the relatively high numbers of unbanked people.
However, the biggest market to date, and one everyone will be keeping an eye on, is China. In 2021 it launched a pilot version of its digital renminbi, e-CNY.
According to officials, more than 140m users have now registered for e-CNY accounts and, as of November last year, the digital currency had reportedly processed $9.7bn worth of transactions.
