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Tuesday 19 March 2019

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Central banks ‘cautiously’ weighing up digital currency

Written by Hannah McGrath
09/01/2019

Around 70 per cent of central banks are researching the potential of issuing a central bank digital currencies (CBDC) to complement or replace traditional money, according to a report by the Bank for International Settlements (BIS).

The Swiss institution for the 63 central banks worldwide said the survey showed that central banks are “proceeding with caution” towards the idea of centralised digital currency for general use - a opposed to wholesale use - but most institutions remain at a conceptual stage of development.

While the study showed a slight increase in the number of institutions engaged in CBDC work since 2017, just five banks had progressed to grappling with the practical implications through pilot projects.

Half of those central banks involved in the conceptual stage of work on CBDCs had moved onto more “hands-on” proof-of-conception activities which test new technologies – a rise of 15 per cent on 2017.

But the report stressed that research findings shared amongst central banks found that the work was still in its infancy and would require collaboration to develop more common understanding of the implications of CBDCs for the world's economies.

The survey showed that nearly a quarter of the central banks surveyed - 41 of which are in emerging market economies and 22 in advanced economies - already have, or will soon have, the legal authority to issue CBDCs in the coming years, while a third do not and 40 per cent remain unsure whether they will acquire the authority.

Despite this, over 85 per cent of central banks said it would be “unlikely” or “very unlikely” that they would issue any type of CBDC over the next three years, while two central banks based in emerging market economies said they were considering the option of issuing a general purpose CBDC over the same “short term” horizon.

In November, the head of the International Monetary Fund Christine Lagarde raised the prospect of central banks issuing their own digital currencies during a speech about regulatory concern over the growth of digital currencies such as Bitcoin.

The survey found that central banks based in advanced economies viewed the most important benefit of a general purpose CBDC as payments safety for consumers and businesses, followed by financial stability. Meanwhile, banks in emerging markets economies prioritised payments efficiency and financial inclusions as key drivers for the introduction of a digital currency.

Nevertheless, the report concluded that at this stage, the majority of central banks appeared to have clarified the challenges of launching a CBDC, but had yet to be “convinced that the benefits will outweigh the costs”.

The report stated: “Responses show that central banks are proceeding with caution and most are only at a conceptual stage with their work. However, a handful have moved to considering practical issues and a couple of central banks with idiosyncratic circumstances might issue a digital currency in the short or medium term.”



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