Almost all central banks are toying with digital currencies in response to crypto-challengers and technological developments, a new survey has found.
However, the latest Bank of International Settlements (BIS) poll of 86 monetary authorities suggests wholesale central bank digital currencies (CBDC) will likely arrive ahead of, limited, retail versions.
“… the likelihood that a wholesale CBDC will be issued within the next six years is now greater than that for retail,” the BIS report says. “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.”
Wholesale CBDCs could bring efficiencies to interbank settlements or cross-border transactions between institutions, the BIS survey says, while retail iterations (digital cash) would probably be offered in limited, non interest-bearing, formats.
But 94 per cent of those surveyed are “exploring” digital currencies in one way or another, the study found, including the Reserve Bank of NZ that is currently consulting on a ‘digital cash’ solution.
“… CBDC work has evolved from theoretical research on potential implications for payments, monetary policy implementation and financial stability into real-life experiments to test the feasibility and desirability of specific design features,” the BIS paper says. “To date, more than half of the central banks are working on proofs of concept, and one out of three is running a pilot.”
Central banks are fast-tracking digital currencies largely in response to the rise of ‘crypto’ tokens and associated ‘stablecoins’ despite the still-limited impact of the sector on the core financial system.
“Preserving the role of central bank money is among the key drivers of the CBDC work for more than two thirds of respondents. Central banks mentioned that a retail CBDC could help ensure the singleness of money, which refers to the convertibility at par between different forms of money,” the BIS report says. “Various central banks have raised concerns that this singleness of money may be threatened by the emergence of new forms of privately issued money. Others reported that a wholesale CBDC would enforce the role of central bank money as a settlement asset in a tokenised ecosystem.”
Stablecoins, a genre dominated by ‘Tether’, purport to provide a 1:1 exchange of a digital token to fiat currency (typically the US dollar) – a functionality that has many central bankers fretting about risk leakage into the wider financial system.
“The survey showed that, to date, stablecoins are hardly used for payments outside the crypto ecosystem, apart from some use by niche groups for remittances and retail payments,” the study says. “When used at a larger scale and not properly regulated and supervised, stablecoins may compromise the safety and efficiency of payments and the financial system more broadly. The survey demonstrated that two thirds of respondent jurisdictions have or are working on a framework to regulate stablecoins and other cryptoassets.”
Authored by BIS contributors, Alberto Di Iorio, Anneke Kosse and Ilaria Mattei, the report says global collaboration will be necessary to ensure a CBDC-intermediated world results in a “safe and efficient payment experience” for all.