Report takeaways: A global look at central bank digital currencies

The Block recently published a 180+ page whitepaper evaluating central bank digital currencies globally. Here are the key takeaways

Copper Team

One of the most notable trends of the last few years has been the rapid push of central banks researching and testing their own digital currencies.

The last few weeks have seen a flurry of news in this area as well. Following the recent announcement that the US central bank is to partner with MIT researchers in the testing of a digital currency, the CBDC race is officially in high throttle.

A new timely, data-rich whitepaper commissioned by KPMG and Blockset, and in collaboration with HashKey Capital, paints a compelling portrait of the current CBDC landscape and offers unprecedented insight on the pioneers of this space.

Below, we’ve highlighted the key takeaways (summaries, statistics, insights) you should know about the findings of the 180+ page report, A Global Look at Central Bank Digital Currencies: From Iteration to Implementation.

Central banks are into digital currencies more than ever

A survey at the start of the year by the Bank for International Settlements (BIS) found that nearly 80% of central banks polled were engaged in full CBDC research efforts and various levels of experimentation, up from 60% in 2017.

But few central banks plan to launch one in the next few years..

A recent survey by Central Banking, the industry’s leading information resource, found that 80% of surveyed banks have no plans to issue a CBDC in the short to medium term. Only 20% expect to in the short to intermediate term.

Findings from another recent Central Banking survey with 46 respondents showed that 40% of respondents believe a CBDC would be relevant to the organisation in the next 24 months, but is not a current priority. Meanwhile, 30% said it would be important, but not a top 5 priority. Only 12.5% of the central banks surveyed ranked a CBDC critical or a top 5 priority.

Central banks shift focus to retail CBDCs

Central banks are more likely to launch a retail central bank digital currency than a wholesale variant, according to findings from both BIS and Central Banking

The BIS central banks’ survey published in January 2020 surveying 66 banks, found that 15% are exclusively focusing on wholesale use cases. About half of banks surveyed are looking at both retail and wholesale use-cases.

Declining cash use has prompted CBDC initiatives in some countries

Countries such as Sweden and China have been rapidly moving away from cash in recent years.

In Sweden, cash in circulation as a percentage of GDP is now around 1%, while only 6% of total household payments were made with cash in 2018. A growing number of people rely on debit cards or a mobile phone application, Swish, which enables real-time payments between individuals and businesses.

Elsewhere, China has seen cashless payments increase by more than 5 times over from 2014 to 2018, with the value of e-money transactions through WeChat Pay and Alipay surpassing the worldwide volume of Visa and Mastercard combined.

In Bahamas, Exuma was selected for the CBDC pilot launch because of the island’s high cell phone adoption rate. A 2019 baseline survey revealed that 96% of respondents owned mobile devices and its residents were open to utilising digital financial services, as more than half of the people surveyed were willing to receive payments through digital platforms.

Although this is not always the case…

The central bank of Japan, the BoJ, has been formally researching CBDCs since January 2020 when it partnered with five other major central banks to experiment with the technology.

However, in Japan, cash in circulation has been growing 2% annually and the preference for cash remains surprisingly strong.

Other interesting stats

According to a Central Banking survey, just under 65% of central banks researching CBDCs have a dedicated budget for the project.

And while it would be easy to assume that blockchain is essential to any form of CBDC, retail or wholesale, surveyors preferred a general issuance model – with only 1/3 of respondents considering using DLT.

Conclusion

Earlier this year, Copper joined the Digital Currency Institute (DMI), an organisation run by the Official Monetary and Financial Institution Forum (OMFIF), an independent think tank concerned with central banking, economic policy and public investment.

Made up of policy makers, technical experts and supervisors, the organisation seeks to explore the opportunities brought about by digital finance and is supported by the Bank of England, the World Bank and the International Monetary Fund.

Dmitry Tokarev, CEO at Copper commented: “The Block’s whitepaper provides highly informative insight on the rise of central bank digital currencies. Globally, the digital payment space has seen dramatic innovations in the last decade, and COVID is only accelerating this further. If a CBDC is introduced that can deliver the speed that consumers want while successfully tracking money laundering and criminal transactions, the outcome may be a significant jump in economic growth.”

“But though the benefits CBDCs present are vast, digital currencies also give rise to a plethora of challenging technical and design questions. A well-functioning CBDC will require an extremely robust and secure infrastructure, with the ability to onboard and support users on an enormous scale.”

“Recent global events suggest intensifying competition in the race to launch a CBDC. Federal Reserve Governor Lael Brainard noted in a speech earlier this month that central banks have been spurred to accelerate their digital currency experimentation efforts in response to China’s rapid progress.”

“As the first entrant in the CBDC market, China has a head start. However, as we’ve seen time and again, winners aren’t always determined by who started or who gets there first. As in the fable of the tortoise and the hare, we see the patient, consistent, tortoise win the race against the faster hare.”

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