CBDCs set to acquire critical mass in next five years

Momentum is building in the search for cross-border payment solutions

For many years, globalisation seemed to be on an unstoppable trajectory, bringing us closer to a unified global economy. Nations became ever more integrated, not just with their neighbours, but with trading partners all over the world.

Today, that no longer seems inevitable. Multipolarism has risen in prominence as an economic model. Many of the easy wins of globalisation have already been achieved. Pursuing further global integration, particularly if it is to be delivered in an equitable manner, takes careful thought and concerted effort.

Such a system would necessarily entail progress towards a single global payments network, where value can be transferred seamlessly between people and businesses anywhere in the world, with liquid and transparent markets providing the exchange rate.

But bringing the global economy together in a single system like this is immensely challenging. Each country has its own internal payment and legal systems that have developed, often over long periods of time, in accordance with the needs and preferences of its users and lawmakers. Attempting to homogenise these standards globally is an immensely difficult project.

OMFIF’s Future of payments 2023 dissects this dynamic and evolving payments landscape. From central banks’ forays into digital currencies and attitudes to cross-border payments, the report delves into the push to develop regional payment networks and the challenges of establishing regulatory harmony.

A survey of central banks explores the areas with which central banks are struggling and where they intend to seek further advice from third parties, providing a clear roadmap for the private sector to work from. The report examines the potential impact of cryptocurrencies and stablecoins – challengers from outside the established payments network – particularly in emerging markets where they offer access to a global marketplace.

Figure 1. More than 40% of surveyed central banks will have a CBDC within five years

When do you expect to issue a CBDC? Share of respondents, %

Source: OMFIF Future of payments survey 2023

Momentum around central bank digital currency development is building steadily. Of the central banks that responded to our survey, 41% expect to have launched a CBDC within five years (Figure 1). In last year’s survey, this figure was 36%. The proportion of central banks who do not expect to launch a digital currency has fallen from 35% in 2022 to 19% this year.

The reasons why central banks may be inclined to launch a CBDC continue to vary, especially along developed versus emerging market lines. For the majority of emerging market respondents, the clear motivation is to improve financial inclusion (Figure 2). For many developed market central banks, it is more of a defensive play to preserve monetary sovereignty.

Adoption is the single biggest concern for central banks looking to launch a CBDC. That concern is much more pronounced in developed markets, with some 67% of respondents picking it as their main concern, compared to 37% of emerging market respondents.

Figure 2. Financial inclusion is motivating emerging markets

What is your main motivation for pursuing a CBDC? Share of respondents, %

Source: OMFIF FoP survey 2023

Central banks know they need help with some aspects of CBDC design. Many have already looked for help in areas like privacy and user experience. But for other topics, including interoperability, offline payments and cross-border connectivity, more are still intending to enlist third-party assistance. Offline payments, in particular, is proving to be the most challenging aspect of CBDC design to deliver.

Collaboration between central banks to connect CBDC networks is underway in some areas, but the projects have not yet won the confidence of the majority of central banks we surveyed. Common platform projects like mBridge and hub-and-spoke projects like Icebreaker are advancing but, for the moment, compatibility is the model that central banks favour for interconnecting CBDCs.

These multi-currency CBDC projects are an example of a broader trend towards a regional focus in payments. These regional systems need only a few countries with trading relationships to build consensus on standards and can offer valuable operational efficiency savings for participants. While the dollar is on one side of 90% of global foreign exchange transactions and its status as the world’s reserve currency is not under threat any time soon, 17% of central banks surveyed said that they were actively trying to reduce their reliance on the currency.

Figure 3. The jury remains firmly out on blockchain

Will blockchain be used in future payments systems? Share of respondents, %

Source: OMFIF FoP survey 2023

While some $11tn was transacted in stablecoins in 2022, the survey indicates that central banks are not yet convinced, with no central banks selecting stablecoins or cryptocurrencies as a promising means of improving cross-border payments. Despite some momentum in private sector payments, 66% of central bank respondents said they are unsure that blockchain will play a role in the future of payments (Figure 3).

Download OMFIF’s Future of payments 2023 report for more detail on central bank insights, priorities and concerns, as well as valuable expertise on CBDC innovations from our sponsor, Ripple.

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