Ninety percent of the central banks surveyed by the Bank for International Settlements are exploring the creation a central bank digital currency (CBDC).
In addition, about two-thirds of the 81 banks surveyed, representing 90% of the world’s economy, said they are developing or actively experimenting on CBDCs, the BIS said in a survey released on Friday (May 6).
Interestingly, an April study by consulting and accounting firm PwC looked at all countries and found 80% were at least considering a CBDC.
“Work on retail CBDCs, in particular, has moved into more advanced stages,” the BIS said, noting that 26% are actively developing or piloting digital versions of their currencies. “With two thirds of central banks considering issuance of a retail CBDC in the foreseeable future [six years], the Bahamas, China, the Eastern Caribbean and Nigeria may soon be joined by other jurisdictions issuing or piloting a live retail CBDC.”
In advanced economies, interest in a CBDC is driven the desire to make domestic payments more efficient and ensure financial stability, the BIS said. While the same factors are important to emerging markets and developing economies, they are “above all, driven by financial inclusion-related motivations,” it added.
That said, easing and improving cross-border payments was also important, with cutting long transaction chains and expanding limited operating hours the main benefits.
Also read: BIS Says CBDCs Can Improve X-Border Payments
A Roll for Private Banks?
However, a quarter of all responding institutions who are looking into a retail CBDC said there may be no role for private banks.
Slightly less than a quarter said they are considering not integrating a CBDC with their existing payment systems, which would prevent people from seamlessly moving money between CBDC accounts and private bank accounts using a credit card or electronic money transfer.
That isn’t to say that central bankers are strongly considering a so-called one-tier model in which a CBDC is distributed directly to the public, going to central bank-run accounts and digital wallets. The question left room for this simply to be one of the methods under consideration.
Among integrated CBDCs, onboarding clients, including know your customer (KYC) checks is the most common role under consideration for private financial institutions, by about 95%. Next, about 80% would see them handling retail transactions and about two-thirds recording retail transactions.
Currently, almost none see any significant use of either cryptocurrencies or stablecoins for payments by consumers, with less than 30% saying they have even a niche use. The same applies to cross-border payments, except that the number who see a niche use rises to about 40%.
It’s a different story when it comes to stablecoins, particularly ones backed by a single fiat currency. “A considerable share believes that [they] have the potential to become a widely used method of payment,” the report said. At present, however, their use is generally perceived “to be limited to niche groups or specific use cases.
That’s especially true in advanced economies, where almost 80% of the central banks said they have the potential to scale up and be widely used by the public — and about 20% ranked that as high potential. Both numbers were halved by emerging markets and developing economies.
It’s a different story for other types of stablecoins, with about 45% saying those backed by a basket of fiat currencies — the original plan of Facebook’s Diem (formerly Libra) stablecoin project — have some potential to become widely used as a currency.
And while the use of “algorithmic stablecoins” that maintain their dollar peg is growing rapidly in among cryptocurrency traders and decentralized finance investors — the top two have a combined market capitalization of about $35 billion — central bankers have very little concern they will become widely used by the public.
“The emergence of [stablecoins] and other cryptocurrencies has accelerated global work on CBDCs,” the BIS study concluded. “At the same time, a large share of central banks remains uncertain about the current and potential future use of cryptocurrencies for payments.