The world’s central banks are exploring the benefits and costs of issuing retail central bank digital currencies. Although few have gone ahead and issued, progress has nevertheless been made.
A new report by OMFIF and Giesecke+Devrient Currency Technology examines the current state of CBDC development and highlights the remaining challenges facing central banks. ‘CBDCs: It’s time for action’ also sheds light on the potential benefits that swift deployment of a CBDC can offer. While some of these have been built into central banks’ strategies, others are less frequently touted but may prove important.
Our survey of 34 central banks indicates that CBDC issuance is getting closer, albeit gradually (Figure 1). The road to issuance is far from smooth, however. Though the majority of central banks still intend to go ahead with their plans, almost a third have been forced to delay their issuance timelines and the proportion of central banks that say they are less inclined to issue than last year has risen to 15% from zero in 2022.
Figure 1. Most central banks expect to issue a CBDC
When do you expect to issue a central bank digital currency? Share of respondents, %
Source: CBDCs: It’s time for action
Perhaps the most striking element of good news from the survey is that technical challenges are no longer a serious obstacle for the vast majority of central banks. In previous years, OMFIF’s survey revealed that central banks were wrestling with delivering technical features like offline payments, privacy and interoperability with existing payments systems.
This year’s survey indicates that central banks are vastly more satisfied with their progress on almost every key technical issue than they were last year (Figure 2). Although offline payments was still selected as the most challenging feature to deliver, the proportion was smaller than last year and satisfaction with progress had climbed substantially, reflecting a number of successful pilots in offline payments.
The exception to the general improvement is on user experience, where a much higher proportion than in previous years rated this as the most challenging feature of a CBDC to design. However, OMFIF believes that this reflects technical progress on the more existential challenges of delivering a CBDC. Without improving satisfaction on major technical topics like privacy and interoperability, it is unlikely that central banks would have advanced to the stage of focusing on designing user experience.
Figure 2. Satisfaction with progress climbs in key areas
In which areas of CBDC design are you most satisfied with the progress made? Share of respondents, %
Source: CBDCs: It’s time for action
This year, the report delves deeper into the rationale underpinning the issuance of CBDCs. It finds that motivations for issuance are split between emerging and developed markets: 44% of emerging market respondents chose promoting financial inclusion as their primary motivation, while 50% of developed markets chose preserving central bank monetary sovereignty. Offline payments are a particularly important consideration for financial inclusion since they help to make a CBDC accessible in remote areas without or with only intermittent access to internet connectivity.
Finally, the report examines the ways in which the payments system is already undergoing dramatic changes from innovation in the private sector. While this innovation is welcome, for the digital payments world to operate entirely on private forms of money, including new forms from beyond the banking sector, it would compromise the important role of central bank money as monetary anchor.
By developing a CBDC, central banks can maintain their mandate as issuers of sovereign money and provide a secure digital infrastructure on which service providers can innovate and offer new financial products and services.
‘It’s time to make the decisive step to create a public digital payment ecosystem with CBDC,’ said Wolfram Seidemann, chief executive officer of G+D Currency Technology. ‘CBDCs hold significant potential for advancing the digital economy. By offering a public infrastructure, central banks can pave the way for innovative financial products and services, while reducing fragmentation in the financial system.’
Download the report.
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