Growth in the number and progress of central banks’ digital currency explorations worldwide has been highlighted in an authoritative report.
The ‘Gaining Momentum – Results of the 2021 BIS Survey on Central Bank Digital Currencies’ publication is based on a survey of 81 central banks about their engagement in central bank digital currency (CBDC) work, as well as their motivations and their intentions regarding CBDC issuance.
Nine out of 10 are exploring CBDCs and more than half are now developing them or running concrete experiments, according to the paper, whose analysis – published today (6 May) – is co-authored by Anneke Kosse and Ilaria Mattei from the Bank for International Settlements (BIS)’s monetary and economic department.
Involvement with CBDCs ‘gained further momentum’ during 2021, the report states. Referencing CBDCs such as the Bahamas’ Sand Dollar and Nigeria’s eNaira that are already live, the authors predict that there are ‘likely more to come’ given that a record share of central banks in what constitutes the fifth such annual survey are ‘engaged in some form of CBDC work’.
Globally, about 68 per cent of central banks consider that they are ‘likely to’ or ‘might possibly’ issue a retail CBDC in the short or medium term, according to data in the report.
Retail CBDCs trump wholesale for interest
Both Covid-19 and the emergence of so-called stablecoins and other cryptocurrencies have accelerated work on CBDCs – ‘especially in advanced economies, where central banks say that financial stability has increased in importance as a motivation for their CBDC involvement’, the 25-page paper states.
The survey was conducted during the final quarter of last year, which is shortly after then-head of the Bank for International Settlements Innovation Hub, Benoît Coeuré, urged central bankers worldwide to ‘roll up our sleeves and accelerate our work on the nitty-gritty’ of CBDC design. Coeuré, who has since left BIS to become president of France’s Autorité de la concurrence, issued the call during a speech entitled ‘Central bank digital currency: the future starts today’ on 10 September.
The survey is BIS’s broadest CBDC assessment to date. The number of central banks replying in previous years was 65 (2020), 66 (2019), 63 (2018) and 52 (2017). First-time participants this time included the central banks of Angola, Costa Rica, Czech Republic, Namibia and the United Arab Emirates (UAE).
Data shows that central banks are particularly interested in retail CBDCs (which would be available to the general public), ahead of wholesale CBDCs (which are for interbank settlement). All central banks conducting work on CBDCs either look at both wholesale and retail, or focus solely on a retail CBDC, but none is solely focused on wholesale.
Compared with last year, the share of central banks developing a CBDC or running a pilot almost doubled from 14 per cent to 26 per cent. Sixty-two per cent are conducting experiments or proofs-of-concept.
As work on CBDCs moves globally from research towards practical implementation, the shape of future retail CBDC ecosystems ‘may soon be coming into sharper focus’, the report concludes.
Different economies, different motivations
The issuance of a CBDC requires a legal framework that provides the authority to do so. Compared with last year, the share of central banks with such a legal authority increased from 18 per cent to 26 per cent. In addition, about 10 per cent of jurisdictions are currently changing their laws.
One quarter of central banks lack the required legal foundation and about 40 per cent are ‘unsure’, according to the paper.
Central banks of advanced economies and emerging market/developing economies typically have different motivations for considering issuing a retail CBDC. Overall, retail CBDC work in advanced economies is driven mainly by domestic payments efficiency, payments safety and financial stability considerations – central banks indicated that the emergence of stablecoins and other cryptocurrencies had accelerated their work on CBDCs. The same factors are also important drivers for retail CBDC work in developing economies but their CBDC engagement is, ‘above all, driven by financial inclusion-related motivations’, the paper states. Compared with advanced economies, developing economies assign a higher weight to monetary policy implementation as a reason to explore or develop a CBDC, the paper adds.
BIS and the World Bank Group released a joint-paper just last month entitled ‘Central bank digital currencies: a new tool in the financial inclusion toolkit?’.
The Committee on Payments and Market Infrastructures (CPMI), in collaboration with the BIS Innovation Hub, World Bank and International Monetary Fund (IMF), are due to deliver a report to the G20 in July 2022 in which they identify and analyse options for accessing and interlinking CBDCs with a view to improving cross-border payments.
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