In its recent report, the Bank for International Settlements (BIS) examined the rise of central bank digital currencies (CBDCs) across different economies, and said that its role would be “intended as a complement to, not a replacement for cash.”
Additionally, the ultimate goal of the report is to share material on the topic for central banks to learn from one another and eventually add to the international policy dialogue in this space.
“We believe that there can be great value in central banks learning from one another’s approaches – an activity that is promoted by international policy discussions (BIS (2020)) and the publications of central banks,” it said.
The report also pointed out that nations that are far along in the digital technology and innovation domain are more likely to succeed in streamlining the process of digital currency payments systems in order to adapt that model effectively.
In particular, the report takes a deeper look at three economies -- China, Sweden, and Canada -- to discuss the approach and design choices of retail CBDC projects.
For instance, the BIS said that most CBDC projects are likely to take shape in China since it is a technologically advanced nation. The new project called Digital Currency Electronic Payment (DC/EP) is already undergoing testing in four cities in China. Moreover, the report also stated that the plans for a new CBDC in China broadly sit well with its design, also given the pandemic-related mobility restrictions.
According to the BIS’s findings on the technical design front, it said that more central banks are planning to adopt the “hybrid” or “intermediated” model that would allow the private sector to oversee all payments activity while running a cash-like payment system such as direct claim.
The report further sheds light on some of the most prominent reasons and motivations for interest in CBDCs, one of which is the need for a digital currency owing to events such as the ongoing pandemic and the significance of CBDCs in the US Covid-19 stimulus bills.
"Going forward, events such as the Covid-19 pandemic highlight the value of access to diverse means of payments, and the need for any payment method to be both inclusive and resilient against a broad range of threats, just as cash is. While it is difficult to anticipate the range of challenges ahead, central banks will continue to take a long-term view and carefully consider the role of CBDCs in a range of potential future scenarios," the report read.
The Block recently published a report that explored the wide range of approaches to CBDCs. Read The Block's "A Global Look at Central Bank Digital Currencies" here.
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