Central bank-issued digital currency (CBDC) will appear “in relatively short order”, according to an influential global monetary think-tank, as governments grapple with private money networks and new distributional challenges.
Following the recent launch of a digital money research wing, the Official Monetary and Financial Institutions Forum (OMFIF) says over the last few months the CBDC discussion had moved from a “backroom theoretical abstraction” to pragmatic design phase for many central banks.
In the first issue of the Digital Monetary Institute (DMI) journal, Philip Middleton, OMFIF deputy chair, says the prospect for a CBDC was now a matter of ‘when and where’ rather than ‘if’.
“The need for an alternative to the putative introduction of a globally significant private currency in the shape of [proposed Facebook-led cryptocurrency] Libra, and the practicalities of potentially rapidly distributing cash en masse to citizens as part of unprecedented government responses to a pandemic, have made the introduction of CBDCs a strong likelihood,” Middleton says.
The DMI report says a swag of central banks including those in China, the Netherlands, UK, France, Canada and the US had either tabled CBDC proposals or were already in testing mode. In 2018, a Reserve Bank of NZ paper found a central bank digital currency would have “benefits and costs” that required further research to understand.
Despite the high profile of private online money contenders such as bitcoin or, the latest watered-down Libra plan, Middleton says central bank-issued ‘fiat’ digital currency would ultimately prevail.
“We do not envisage completely independent privately issued digital currencies gaining significant acceptance or usage.
Some may operate on a small scale in closed private networks. Some may operate more broadly, for example as payment mechanisms within messaging networks but under sovereign regulation and supervision, with their ultimate expression in fiat currency, but they will not be permitted to challenge the monopoly of fiat currency enjoyed by national governments,” he says. “The threats to national sovereignty and financial stability are too great. Cryptocurrencies such as bitcoin will remain a minority interest for speculators and criminals.”
A recent OMFIF survey of 13,000 people in 13 countries rated central banks as the most-trusted to issue digital currencies – especially in developed economies – while technology firms were the least-trusted.
CBDCs face a number of technical and regulatory hurdles, Middleton says but “policy imperatives rather than technology capabilities that will be the primary driver”.
He says the OMFIF formed the DMI this April to bolster “confidential, collegiate forum for public and private sector participants to engage in the intense debate, discussion and delivery we are about to witness in multiple flowerings of CBDC around the world”.
The OMFIF counts 160 central banks (including the RBNZ) among its membership as well as “47 of the top 50 asset management firms and 44 of the top 50 banks”.