The Bank for International Settlements (BIS) has found that a growing number of countries are moving into advanced stages of development for central bank digital currencies (CBDCs).
CBDCs are central bank-issued digital money denominated in the national currency. They differ from existing forms of cashless payments, such as credit transfers and direct debits, as they are a direct claim on a central bank rather than a liability of a private financial institution.
The lack of risk involved also differentiates CBDCs from cryptocurrencies, such as Bitcoin, and other private digital tokens, such as Tether.
2020 was an important year for CBDCs. It saw the first nationwide launch of a CBDC in the Bahamas – under the name of ‘Project Sand Dollar’ – with the goal being to promote financial inclusion across the nation’s 30 inhabited islands with a population of 390,000 people.
Meanwhile, the global Covid-19 pandemic has caused 40% of the central banks interviewed by the BIS to accelerate plans towards digital currencies, signifying that the rollout of CBDCs around the globe may be coming sooner than earlier surveys have anticipated.
Released in January, the BIS’ survey saw 65 central banks respond, representing 72% of the world population and 91% of global economic output. Of these respondents, 21 came from advanced economies (AEs) and 44 were from emerging market and developing economies (EMDEs).
The survey found that 86% of central banks in the survey were exploring the benefits and drawbacks of CBDCs. Of this cohort, there has been noticeable progression in the types of research central banks are working on.
Since 2019, there has been an 18% increase (from 42% to 60%) in the number of banks that are now conducting experiments or proofs-of-concept for CBDCs. Furthermore, 14% of central banks (compared to 9% in 2019) are advancing onto development and pilot testing stages.
Despite these global trends, the survey found that interest in CBDCs “continues to be shaped by local circumstances”.
In emerging markets and developing economies, financial inclusion and payments efficiency are considered the driving factors behind CBDC development. However, in advanced economies, payments security and potential for monetary policy implementation are generally considered more important.
EMDEs as a whole reported stronger motivations for issuing CBDC than AEs and this motivation is reflected in the data, with seven out of the eight central banks in advanced stages of CBDC work being from EMDEs.
Overall, the likelihood of CBDC issuance continues to increase as central banks representing a fifth of the world’s population said they were likely to issue a CBDC in the next three years.
Having said this, the majority of central banks (60%) still see themselves as unlikely to issue any type of CBDC within the next six years. However, this percentage is shrinking over time as more banks continue to further explore CBDCs’ potential.
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