Central Bank Digital Currencies (CBDCs)


CBDCs are similar to stablecoins in the sense that they are digital tokens pegged to the price of a sovereign currency like the U.S. dollar. However, instead of being issued by private companies on decentralized networks, CBDCs are issued and maintained by their respective governments or central banks.

114 countries, representing over 95 percent of global GDP, are exploring a CBDC. In May 2020, only 35 countries were considering a CBDC. A new high of 60 countries are in an advanced phase of exploration (development, pilot, or launch), according to the Atlantic Council’s CBDC Tracker.

Payments made using central bank digital currencies (CBDCs) will grow from $100m this year to a massive $200bn in 2030. The startling numbers from Juniper research reveal a 260,000% increase over the next seven years.

CBDCs - Central Bank Digital Currency (CBDC)

Why would a government get into digital currencies?

There are many reasons to explore digital currencies, and the motivation of different countries for issuing CBDCs depends on their economic situation. Some common motivations are: promoting financial inclusion by providing easy and safer access to money for unbanked and underbanked populations; introducing competition and resilience in the domestic payments market, which might need incentives to provide cheaper and better access to money; increasing efficiency in payments and lowering transaction costs; creating programmable money and improving transparency in money flows; and providing for the seamless and easy flow of monetary and fiscal policy.

There are several challenges, and each one needs careful consideration before a country launches a CBDC. Citizens could pull too much money out of banks at once by purchasing CBDCs, triggering a run on banks—affecting their ability to lend and sending a shock to interest rates. This is especially a problem for countries with unstable financial systems. CBDCs also carry operational risks, since they are vulnerable to cyber attacks and need to be made resilient against them. Finally, CBDCs require a complex regulatory framework including privacy, consumer protection, and anti-money laundering standards which need to be made more robust before adopting this technology. (CBDC Tracker)


2023


2021

Central Bank Digital Currency (CBDC): In-Depth Guide in 2021

May 6, 2021 – Written by Alamira Jouman Hajjar
> research.aimultiple.com/cbdc

International Monetary Fund

A Survey of Research on Retail Central Bank Digital Currency

Jun 26, 2020 – This paper examines key considerations around central bank digital currency (CBDC) for use by the general public, based on a comprehensive review of recent research, central bank experiments, and ongoing discussions among stakeholders.
> imf.org/A-Survey-of-Research-on-Retail-Central-Bank-Digital-Currency