In 2018, the Bank for International Settlements, a consortium of banks based in Basel, Switzerland, ran a survey to find out where the world’s central banks stood in terms of central bank digital currencies, or CBDCs.
At the time, it discovered that much of the work being done was conceptual. A year later the BIS did another polling of central banks. The results? A fifth of the world’s population will likely be using a CBDC in the next three years, according to a report released Thursday.
CBDCs are a new type of digital money. They can be used for interbank settlements or they can be used as a type of general purpose “digital cash,” meant as a stand in for regular bank notes. Unlike digital currencies such as Facebook’s proposed Libra and Telegram’s gram token, CBDCs are legal tender fully backed by the state, which means you can use them to buy movie tickets, pay for groceries and even pay your taxes.
The BIS report includes the results of an annual survey it conducted in the latter half of 2019 to determine global interest in CBDCs. It polled 66 central banks in both emerging and developed economies, representing 90% of the world’s economic output. Twenty one of the responding banks came from advanced economies, while the other 45 are from emerging economies, or EMEs.
Most banks: no CBDC soon
The majority of central banks polled said they were unlikely to issue any type of CBDC soon.
“About 70% of banks still see themselves unlikely to issue any type of CBDC in the foreseeable future,” the report said. Nevertheless, 10% (twice as many as the year before) said they were likely to issue a CBDC in the short term, and 20% in the long term, according to the report.
The ones who are looking to issue a general purpose CBDC soon represent a fifth of the world’s population, and are likely to issue a CBCD by 2023, according to the report.
BIS does not specifically name the central banks that are close to issuing digital currencies. But the estimate that 1.5 billion people will use CBDCs by 2023 makes sense when you consider that China—the world’s most populous country with 1.4 billion people—has said it will soon issue a CBDC. The People’s Bank of China recently stated that it has completely the top level design of it’s digital yuan, meant to complement the use of cash in the country.
A handful of other central banks are running pilots for CBDCs. In the Caribbean, the Central Bank of the Bahamas and the Eastern Caribbean Central Bank have pilots up and running, according to the report. Sweden and Uruguay’s central banks are also currently developing or running pilots, it said.
The European Union has been looking seriously at the idea of an e-euro. In September, French Finance Minister Bruno Le Maire called for the European Union to create its own digital currency, saying, “we also need to step up our thinking on a central bank digital currency.”
As for the U.S., Federal Reserve Chairman Jerome Powell poured cold water on the idea in November. He said issuing a CBCD would be difficult in the U.S. because Americans are still largely cash dependent.
EMEs most motivated
According to the BIS report, 80% of central banks all around the world are “undertaking extensive work on central bank digital currencies.” That’s up from 70% in the prior year.
Most of that is work is happening in emerging economies. “Every bank that has progressed to development or a pilot project is an EME institution,” the BIS said.
EME’s have stronger motivations to work on general purpose CBDC, the BIS said, especially when a CBDC is being designed as a complement or a replacement for bank notes. Cash use is the key to driving many central banks plans, with EME’s aiming to reduce reliance on cash.
In general, EME central banks want to improve domestic payment efficiency, payment safety, and increase financial stability, according to the report. CBDCs are often touted as a way to bring the unbanked into the financial system. That was the key justification Facebook’s Libra project offered for its private stablecoin.
For advanced economies, increased efficiencies for cross-border payments were the most important motivation, the report said.
One hurdle in getting a CBCD out the door is legal authority. Only about a quarter of the banks polled said they had legal authority. A third do not, and about 40% remained unsure. That is not surprising given that in the “absence of any plans to issue a CBDC, central banks may not be able to prioritise a clarification for their mandates,” said the report.
The central bankers are working on that, however.
According to a report issued Wednesday, the World Economic Forum and a community of over 40 central banks, international organizations, academic researchers and financial institutions have created a framework to help central banks evaluate, design and potentially deploy CBDCs.
The toolkit is the WEF’s attempt to help policy-makers understand whether deploying a CBDC makes sense and guide them through its design.
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