Central Bank Digital Cash is Coming, Emerging Economies Lead

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Central banks representing a fifth of the world’s population say they’re likely to issue a “Central Bank Digital Currency” in the next three years, according to an official survey.

According to a survey on CBDCs published by the Bank of International Settlements on Jan. 23, central banks representing 20% of the world’s population say they’re likely to issue a CBDC in the next three years ⁠— and while the relative number of banks is small, representing 10% of the banks surveyed, that’s still twice as many as last year.

While roughly 70% of central banks still deem it unlikely to issue any type of CBDC in the near future, 80% of them say that they’re working on or looking into CBDCs in one way or another. 

Emerging Economies Leading the Way

All central banks that have moved on from conceptual research to development are in emerging market economies. 

The research suggests that these smaller economies have stronger motivations to develop wholesale CBCDs than their more advanced peers, especially in concern to financial stability, payment efficiency, and payment safety. In line with this, emerging economy central banks will also be the first over the line to issue a general purpose CBDC. Virtually all banks likely to issue a central bank currency in the short-term are in emerging markets, said the survey.

For advanced economy central banks, interoperability and the increased efficiency of cross-border payments are the two prevailing motivations for issuing a CBDC. For what it seems, advanced economies are not rushing anywhere and are, instead, more focused on establishing greater international collaboration.

Beyond CBDCs

The BIS also asked central banks about stablecoins and cryptocurrencies. One thing that sticks out from the survey is that one central bank, whose jurisdiction is facing serious civil unrest, reported a significant uptick in cryptocurrency adoption and saw wider public use for both domestic and cross-border payments. 

Another interesting tidbit is that while roughly 60% of the central banks are considering the impact of stablecoins on monetary and financial stability, almost none of them are emerging market institutions. 

Although motivations are fairly stable, central banks with firmer plans to issue CBDC are now imminently close to doing so. Some 10% of the central banks surveyed are likely to issue a CBDC for the general public in the short term, representing 20% of the world’s population. 

Phasing Out Cash

Even though motivations for CBDC research vary greatly depending on the specific jurisdiction, the report finds that cash — or the lack thereof — is the main driver.

Emerging economy central banks are working on CBDCs in order to reduce local reliance on cash, while advanced economy central banks are more concerned with financial inclusion and aim to give the general public greater access to central bank money.