BIS: CBDC Research Gaining Steam but Widespread Issuance Years Away

The monetary revolution will be digitized … but for the vast majority of earthlings likely not anytime soon, according to central bank digital currency (CBDC) research published Wednesday by the Bank for International Settlements (BIS).

To get there, though, 86% of the central banks surveyed in BIS’ third annual CBDC questionnaire said they were at least considering the pros and cons of issuing digital-first fiat, up from 80% last year. This year’s survey featured 65 central banks.

Even more telling was the share of central banks moving beyond mere table talk. BIS said 60% of central banks are now conducting CBDC experiments or proof of concepts. Just 42% said the same in 2019. 

Emerging market central banks are driving CBDCs forward with more gusto and purpose than their counterparts in advanced economies, citing financial inclusion and payments efficiency as top motivating forces. They’re also participating in higher numbers: seven out of eight CBDC projects are in emerging markets.

“A testament to these motives is the launch of a first ‘live’ CBDC in the Bahamas,” BIS wrote. “This front-runner is likely to be joined by others: Central banks collectively representing a fifth of the world’s population are likely to issue a general purpose CBDC in the next three years.”

Although BIS did not provide a country-by-country issuance plan breakdown, that staggering figure could only be representative of China, home to over 18% of the world population and also one of the most advanced CBDC projects. China is already one year into pilot testing its DCEP. 

Still, global CBDC adoption is likely still years away, BIS said. Countries are just not backing their heightened CBDC research with definitive plans to roll a project out. Tellingly, half of the central banks that in 2019 said they were “likely” to issue a CBDC in the short term downgraded their sentiment to “possible” or “unlikely” in the 2020 survey.

Advanced-stage projects are also hedging their go-live windows, BIS said.

Most central banks are more interested in a “retail” CBDC (consumer and day to day use) than a “wholesale” CBDC (systemic payments; transfers between banks). Some countries that once considered both models now focus their research on retail, perhaps seeing more value in digital fiat for the people than digital currency for the banks.

CBDC legality remains a largely unanswered question among the surveyed central banks. Forty-eight percent were not certain they had the authority to issue digital currency and 26% were certain they didn’t. 

Central banks continued to view cryptocurrencies as a largely irrelevant force with limited if any appeal in the 2020 survey. Strong majorities ranked cryptocurrencies as “trivial” for the domestic payments space for the third consecutive year. Notably, over 40% said crypto could have “nice” appeal in the cross-border payments space, a rare bright spot in the otherwise crypto-minimalist data. 

Central banks, and especially those in emerging markets, indicated more concern in the threat posed by stablecoins. Over two-thirds of central banks are studying the issue, BIS said.

But the respondents were nonetheless adamant that private stablecoin arrangements (read: Facebook’s libra/diem) are not a driving force behind their CBDC projects. Competition from stablecoins and cryptocurrencies fail to provide them with a compelling CBDC rationale.

“When it comes to cryptocurrencies, central banks continue to see them with no widespread use as a means of payment,” the report said.