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Over the next six years, central banks are more likely to issue wholesale central bank digital currencies (CBDCs) than retail CBDCs, a new report from the Bank for International Settlements (BIS) has found.
The report, which is based on a survey of 86 central banks, is the seventh annual BIS study to look at central banks’ progress towards CBDCs, from research to testing and from pilot schemes to full launches.
Based on the number of central banks that indicated that they would be “very likely” to start issuing a CBDC over the next few years, there could be six additional retail and nine wholesale CBDCs publicly circulating towards the end of this decade, said the BIS.
“In line with the downward-adjusted expectations for retail CBDC issuance, this is fewer retail CBDCs than were predicted last year,” the bank added.
As in previous years, the likelihood of issuing a retail CBDC is generally greater among emerging market and developing economy (EMDE) central banks than among advanced economy (AE) central banks.
At present, only four retail CBDCs are currently live, and all have been issued by EMDEs: Jamaica, Nigeria, the Bahamas and the Eastern Caribbean.
Last year, the was a “sharp uptick” in the testing of wholesale CBDCs around the world, the BIS report also found.
Over the course of 2023, the number of “experiments and pilots” using wholesale CBDC increased significantly, mainly due to activities in AEs. EMDEs also stepped up their wholesale CBDC activities, it added, albeit at a slower pace.
Wholesale CBDC features under consideration
In general, wholesale CBDC features are “still undecided”, but central banks are more likely to pursue some features than others.
Source: 2023 BIS central bank survey on CBDCs and crypto
Many plan to make their (potential) wholesale CBDCs interoperable. Around two-thirds of central banks said they are likely to establish interoperability between a wholesale CBDC and other domestic payment systems.
Similarly, more than half of EDME central banks said that cross-border interoperability with other CBDCs and foreign payment systems is likely, compared with only one in four AE central banks.
A significant number of central banks also envisage a potential wholesale CBDC that allows for programmable payments. Almost two-thirds of AE central banks said their wholesale CBDC is likely to accommodate programmable payments, compared with half of EDME central banks.
On the question of whether payment service providers (PSPs) should be mandated to handle wholesale CBDCs, the vast majority of central banks are unsure. The same can be said of accessibility for foreign PSPs.
Retail CBDCs coming into shape
Among the central banks that are working on retail CBDCs, there is wide agreement on the likelihood of certain features. For example, more than three quarters of all respondents said their potential retail CBDC is likely to be interoperable with other domestic payment systems.
Source: 2023 BIS central bank survey on CBDCs and crypto
Similarly, more than two-thirds of all respondents said their potential retail CBDC will be subject to holding limits and will be available offline.
However, there were clear divergences between AE and EDME central banks on the likelihood of other features. Almost no AE central banks said their retail CBDC is likely to run on distributed ledger technology (DLT), whereas around a third of EDME central banks said this is likely.
And more than half of EDME central banks said they are likely to impose transaction limits on a retail CBDC, compared with around 20 percent of AE central banks.
On the question of whether merchants are likely to be mandated to accept a potential retail CBDC, around half of all respondents said yes and the other half were either unsure or said no.
Further consultation needed
The BIS noted that central banks “further enhanced” their engagement with the public and other stakeholders on CBDCs during 2023.
In the UK, for example, a joint Treasury and Bank of England (BoE) consultation on a potential retail CBDC received more than 50,000 responses. This was more responses than all but a handful of previous government consultations, and shows the public’s keen interest in the issue.
As Bim Afolami, economic secretary to the Treasury and City minister, told Vixio in November last year, the responses were “very negative”. Members of the public mostly expressed concerns about the privacy and programmability of retail CBDCs, he said.
Others rejected the necessity of a retail CBDC — a position that, although rare, has also been expressed by central bankers.
In April this year, Thomas Jordan, chair of the Swiss National Bank (SNB), said his institution sees “no need” for a retail CBDC, adding that the "risks of retail CBDC currently outweigh its benefits".
Similarly, in May, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he is “sceptical” of retail CBDC, due to its lack of unique use cases.
“I keep asking anybody at the Fed to explain to me what problem this is solving,” he said. “I can send anybody $5 with Venmo right now, so what is it that a CBDC can do that Venmo can’t do?”
“All I get is a bunch of hand-waving,” he added.
