There have been a number of articles recently expressing reservations about issuing a retail CBDC.
At a BIS event, the Central Bank of Chile announced that it is delaying its planned digital roll out to undertake further work on the benefits and risks. The central bank said the current payment system is working and adapted well to recent challenges. On the other hand, a CBDC could enhance and mitigate against the risks of digital transformation.
At the same event, Ravi Menon from the Monetary Authority of Singapore said that central banks should be focusing on wholesale CBDCs for cross-border payments in order to avoid the ‘laborious’ and ‘archaic’ SWIFT system. The Reserve Bank of Australia believes that there is ‘currently no strong public policy case to introduce a CBDC for retail use’ but is continuing its work.
The Bank of Uganda is also investigating CBDCs, particularly the policy objectives it would address. Its concerns are about whether the technology can deliver consumer protection and financial inclusion. It wants to be clear on the problem it is solving – be it payments, financial innovation, inclusion etc. With a population with low levels of financial literacy, how can it be protected from what is a quite advanced financial innovation? With low levels of internet, smartphone and computer infrastructure, what happens to those who can’t connect?
In parallel, the Bank of Israel has also given an update on its work. It has still to make a decision but wants much more public and business input, having only received 33 submissions so far with over half of those coming from abroad.
With the latest BIS survey suggesting that 90% of central banks are doing work on CBDCs, at least to some extent, these reports suggest that momentum to launch an actual CBDC is somewhat different. The Bahamas is looking to list its CBDC, the Sand Dollar, on a crypto exchange as part of an effort to expand its presence in the cryptocurrency industry. Data isn’t available on how widely the Sand Dollar is being adopted and used but a 2021 central bank survey found most respondents said they were ‘very comfortable’ with cash (88%), whereas only 62% reported the same level of comfort with online banking.
In China Alipay’s app has added a button that enables users to search for and download the official e-CNY wallet within its platform. WeChat Pay set up a similar e-CNY wallet function on its app in April. These changes are part of a programme to increase adoption and usage.
The People’s Bank of China (PBoC) has continued to work to increase the reach of the e-CNY. In early April a further 11 cities joined the trial, bringing the total to 23. The PBoC revealed that 10% of Chinese citizens have used the e-CNY. Last year, the system processed over $10 billion worth of transactions. China is now testing e-CNY for use in payments of tax, stamp duty, and social security premiums.
Grants in the form of e-CNY of up to 1 million yuan ($147,237) were given to new electric vehicle owners in Sanya on 10 May. A further 4 million yuan of subsidies followed over the rest of the month, issued by the Bank of Communications Sanya branch.
A new prepaid e-CNY platform was launched for 200 companies in Shenzhen aimed at education and training institutions, gyms and beauty and hair salons. On this platform payment is taken on the e-CNY wallet, with payments completed when the service is completed.
Finally, Guo Sheng Inclusive Finance in Qingdao issued a consumption loan and a business loan to two borrowers using e-CNY, effectively closed-loop financing using the digital currency aimed at those needing micro-loans.
The Interbank messaging network, Swift, is investigating how to join up the existing payment infrastructures with multiple domestic CBDC networks with the intention of creating seamless cross- border payments.
In 2021 it explored achieving cross-border transactions between an entity on a distributed ledger technology based-CBDC network and another on an established real-time gross settlement (RTGS) system. This work, conducted with Capgemini, ran trials whether they could link up at a network level with CBDCs platforms, irrespective of the technology, with RTGS systems. The prospect of a range of underlying approaches, standards and protocols to CBDCs, means this was an important trial.
Swift wants to be able to deploy a gateway between domestic CBDC networks to allow cross-border transactions.
Argentina has taken the first steps towards a CBDC, with a decree allowing the printing works and mint to investigate, develop and issue a digital currency.
Norges Bank is to create an experimental layer 2 Sandbox to explore a CBDC using Nahmii AS. It is said to have gone this route because Layer 2 blockchain protocols should allow faster transactions and more control. It will use a private enterprise blockchain. The sandbox trial is expected to include all major Norwegian banks.
Layer 2s can serve as ‘bridges’ between different registers/ledgers that may have different characteristics, which could be useful for cross-border transactions. There is a need to connect diverse forms of money to encourage capital flows.
The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, has called for new public infrastructure to connect a range of payment systems, including digital currencies.
An IMF report, ‘Confronting Fragmentation: How to Modernise the International Payment System’, seeks solutions to help connect people, markets and economies in the digital world. Although countries will make decisions on governance, international organisations such as the IMF can suggest concrete solutions, foster consensus and bring together policymakers, private firms and civil society.
