A group of central banks, together with the Bank for International Settlements, are working together to explore central bank digital currencies (CBDCs) for the public (“general purpose” or “retail” CBDC).
Since publishing a report in October 2020 setting out the common foundational principles and core features of a CBDC, and an executive summary and three detailed reports onsystem design and interoperability, user needs and adoption and financial stability implications in September 2021, the group has continued to share ideas and perspectives on similar themes, which are summarised in this note.
Background/motivation
Most central banks are now exploring CBDCs, and more than a quarter of them are developing or running concrete pilots (Kosse and Mattei (2022)). Many of Bank for International Settlements (BIS) jurisdictions are examining whether there is a need to ensure ongoing retail access to central bank money at a time of profound, ongoing changes across finance, technology and society. The motivation for introducing a retail CBDC may rest primarily on the role of central bank money as a public good.
At the same time, the introduction of a CBDC could be an innovative opportunity for the monetary system. It is in this context that the central banks contributing to this group have continued their collaboration to deepen the practical policy and technical analysis of CBDC.
Some of the members of this group are approaching a point where they may decide on whether or not to move to the next stage of their CBDC work. This may include deeper investment in design decisions relating to technology, end user preferences and business models, while leaving open the decision on whether to issue CBDC. To date, none of BIS jurisdictions have yet decided to proceed with the issuance of a retail CBDC. CBDC issuance and design are sovereign decisions for relevant authorities based on their assessments and a jurisdiction’s circumstances. However, there has been value in working collectively on common issues.
Key messages
. Development of CBDC work requires careful consideration and engagement with a wide range of stakeholders, including the private sector and legislators.
. To successfully meet its public policy objectives, a CBDC ecosystem should allow a wide range of private and public stakeholders to participate and, in doing so, deliver services which benefit end users.
. The complex design questions and the potential risks arising from the implementation of any CBDC require careful consideration.
. The evolving payments landscape requires central banks to give some consideration to how CBDCs may be used for wholesale and cross-border use cases.
Jurisdictions issuing CBDC will likely want to enable cross-border payments between them. Enabling, let alone enhancing, cross-border payments via a retail or wholesale CBDC will require central banks to collaborate and make substantial decisions about how CBDCs connect across respective jurisdictions, as well as approaches to nonresident access.
There have been several experiments looking into whether wholesale CBDCs can help to improve cross-border payments and the settlement of tokenised assets both domestically and across borders.
As financial institutions usually already have access to central bank money in digital form, discussion of wholesale CBDC tends to focus on central bank money which utilises new technologies such as distributed ledger technology (DLT). Compared with today’s central bank reserves, wholesale CBDC might enable programmability, composability and tokenisation within the future financial system.
For example, wholesale CBDC could facilitate delivery versus payment settlement in central bank money for tokenised assets and allow for efficiency gains in “atomic settlement”.
Many experiments with wholesale CBDC for cross-border payments have enabled a wider set of participants to have direct access to central bank systems. Broadening access arrangements to a wider set of participants (domestically and/or internationally) would be a significant policy choice that could also be undertaken without CBDC. Therefore, further work is needed to understand how value could be drawn through issuing a wholesale CBDC – particularly what it may provide over and above upgrades and improvements to existing systems. Making improvements with CBDCs may also require central banks to consider the role of further governance and standardisation or alignment in areas beyond messaging standards.
Follow the link to learn more answers to very important CBDC questions:
How can central banks best engage industry and the public?
What are the key legal issues related to retail CBDC?
What tools may be needed to manage stressed conditions?
What could be the implications of using blockchain technology and associated concepts in CBDC?
Banking 4.0 – „how was the experience for you”
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Many more interesting quotes in the video below:
