In recent years, in both advanced (AEs) and emerging market economies (EMEs), central banks have become increasingly engaged in projects related to central bank digital currencies (CBDCs) – ie digital money that is denominated in the national unit of account and is a liability of the central bank (BIS (2021)). However, the stage of engagement – research, pilot or launch – varies according to the country.
All 26 central banks participating in this meeting are active in CBDC research. Several have progressed to the pilot or proof-of-concept stage (eg Hong Kong SAR, Saudi Arabia, Thailand, the United Arab Emirates (UAE)). A few are close to launching (eg China’s eCNY), while some do not see a pressing need for a CBDC in the near future (eg Poland, Singapore).
This paper begins by discussing the main motivations of EME central banks for CBDC engagement, focusing primarily on the rationale for retail CBDCs. A second section reviews central banks’ main concerns regarding retail CBDCs, including data privacy and data governance. The third section discusses design choices for retail CBDCs that promote central bank objectives while addressing possible concerns. The fourth section discusses the implications of cross-border use of CBDCs and related design considerations. The paper concludes with high-level takeaways. Throughout, the paper draws on survey responses and background papers from the central banks participating in the meeting.
Motivations for CBDC issuance
The top motivations for CBDC issuance vary across EMEs, with no single factor dominating, as the survey shows. Providing a cash-like digital means of payment, in light of reduced cash usage and an increase in private digital payment services, is the most common consideration. Boosting financial inclusion also ranks high. Other significant considerations include strengthening competition among payments service providers (PSPs), increasing efficiency and reducing the costs of financial services. Background papers suggest that these motivations are not mutually exclusive. Indeed, a majority of central banks consider many of these motivations as jointly important.
Provide cash in digital form
The digital revolution is changing the payments landscape. As big techs and fintech firms move into financial services, payments are no longer a commercial bank monopoly. New forms of digital asset such as cryptocurrencies and stablecoins are also emerging as a potential means of payment. In many EMEs – including India, Pakistan, Kenya and Tanzania – digital payments via mobile phone have gained ground. Meanwhile, the cash-to-GDP ratio – a proxy for the use of cash in payments – has declined in a number of EMEs (CPMI (2021)). In China, for example, cash could lose its central role in the not-too-distant future.
Re-disseminated by The Asian Banker