Central bank digital currencies capture public’s interest like Bitcoin, Libra

The public’s interest in central bank digital currencies spiked as high this year as it did in Facebook’s Libra last year and Bitcoin in late 2017 and early 2018, according to a review of Google searches.

According to an Aug. 24 report from the Bank for International Settlements, “there is growing discussion of a new payment technology: central bank digital currencies (CBDCs).”

While this is true for the general public, based on a review of searches on Google (and Baidu in China), it is also true for central bankers. A review of central bankers’ speeches found the number of positive speeches about CBDCs growing dramatically in 2020, while the amount of negative speeches has grown only slightly since 2018. 

By the middle of the year, the number of positive speeches surpassed the number of negative speeches.

It should be noted that the report distinguishes between wholesale CBDCs—those used for behind-the-scenes transactions by financial institutions—and retail CBDCs that would be used by the general public to pay for things. Almost all of the negative speeches focused on retail CBDCs, while about half of the positive speeches did so.

The BIS is an international institution made up of central banks.

Three advanced plans

The report also digs down into the CBDC plans of three countries with advanced solutions. These are China’s digital currency/electronic payment (DC/EP) plan, Sweden’s e-krona, and Canada’s CBDC Contingency Plan. 

China’s digital yuan, which on Aug. 14 expanded into the economic heart of the country in Beijing, Hong Kong, and Guangdong province, is far and away the most advanced. 

It is contemplating a mixed infrastructure, including both traditional databases and the distributed ledger technology blockchain runs on. The People’s Bank of China has “emphasized that DLT is not yet sufficiently mature for such a large-scale application” the report said. To accommodate China’s huge number of retail transactions, a digital yuan would have to be able to handle 300,000 transactions per second. Visa currently has a maximum capacity of about 65,000 transaction per second.

Sweden’s Sveriges Riksbank’s e-krona project uses DLT based on R3’s Corda. While it uses digital wallets, the BIS notes that the project is considering payment cards for small-value transactions.  

While the Bank of Canada has concluded that “there is not a compelling case to issue a CBDC at this time,” it has a well-developed contingency plan should that change. Both DLT and conventional technologies will be considered. 

More broadly, the report found that retail CBDCs are more likely in countries with a larger informal economies, while wholesale digital currencies are likely to come to advanced economies. All are intended to complement cash, not replace it.