A recent survey by the Bank for International Settlements (BIS) revealed that nine out of 10 central banks in the world are exploring the possibility of creating their own digital currencies.
The report was made based on a survey of 81 central entities around the world, including the Federal Reserve, the Bank of England, the Bank of the Republic, the Central Bank of Chile, the Banxico of Mexico, to name a few. .
Issuers responded about their involvement or progress in foraying into their own central bank digital currency (Cbdc), as well as their motivations and intentions regarding the issuance. It also revealed that more than half of the central banks are already developing their own cryptocurrencies.
The survey was conducted between August and November 2021, and inquired about the possibility of central banks using algorithmic or so-called stablecoin cryptocurrencies and other cryptocurrencies in their jurisdictions.
Given this, it highlights that central banks urgently need to advance their studies given the accelerated pace of adoption of traditional cryptocurrencies and their growing popularity.
He explains that CBDCs fall into two broad categories: wholesale, which act as digital reserves, and retail, which would be issued to the general public and have commercial use.
According to the results of the study, issuers are focusing more on the retail segment and have progressed to more advanced stages. He says that two-thirds of institutions indicated that digital currencies could be issued for this purpose in the foreseeable future.
In addition, almost 70% of the institutions surveyed are considering an architecture that involves working with private sector intermediaries, that is, commercial banks, to incorporate digital currencies to users. Although he warns that foreign exchange policymakers are also working on wholesale Cbdcs, which could be used to improve the efficiency of cross-border payments.
As the report explains, covid-19, the appearance of stablecoins and other cryptocurrencies were decisive for central banks to begin studying the use of CBDCs, especially in the most advanced economies.
The report says that issuers believe their digital currencies would be able to alleviate key pain points, such as the limited operating hours of current payment systems and the length of transaction chains. Few countries have made significant progress in testing cryptocurrencies. China, Nigeria, the Bahamas, and some Eastern Caribbean islands are already issuing or testing consumer-facing digital currencies.
The digital yuan, the People’s Bank of China’s cryptocurrency, began testing in 2020 and has already been tested in about a dozen regions with 140 million users. This is by far the Cbdc that has made the most progress in its study, although the eNaira of Nigeria also stands out, which came into circulation in October 2021 with the aim of improving monetary policy.
The progress of the Nigerian CBDC has been slow so far, but it has reached more than 700,000 users. Among the main problems that eNaira has had is the lack of awareness of its use and existence, especially in rural areas, and that it is only available to bank customers, when almost 36% of its population does not have an account.
On the other hand, the Central Bank of the Eastern Caribbean, issuer of eight island nations in this region, launched a pilot plan in 2021 for DCash. Digital currency is for people to send or receive money from a cell phone or digital wallet.
Other central banks that are advancing in studies are those of the Euro Zone (digital euro), Brazil (digital real), Marshall Islands (sov) and India (digital rupee). “Cbdc issuance requires a careful assessment not only of the opportunities but also of the risks, as they can have a significant impact on the functioning and stability of the financial system as we know it. There could be a substitution of bank deposits for digital money from the central bank, which is easier to store than cash and could alter the financing structure of commercial banks and their ability to provide credit to the real economy”, warns Pablo Urbiola, head of the Bbva’s Digital Regulation team.