A great list of central bank thinking about digital currencies (#CBDC)

Madhvi Mavadiya, Head of Content at Finextra, just posted a great list of developments in Central Bank Digital Currencies (CBDCs). She promises to keep it updated and the link is here.

It covers every country from Antigua to Curaçao to Iran. 80 countries in all. As my main interests are in the leading financial centres, I’ve picked out a few highlights:

United States – Federal Reserve Board – Research – Retail

Fed Chairman Jerome Powell stoked excitement in January 2022 by stating that a highly anticipated report on cryptocurrencies and CBDCs will be released in February.

United Kingdom – Bank of England – Research – Retail and Wholesale

In January 2022, a Committee of peers in the House of Lords concluded that there was no convincing case for the creation of a CBDC in the UK. The Economic Affairs Committee found that while a CBDC may provide some advantages, it could present significant challenges for financial stability and the protection of privacy. The Bank of England and HM Treasury have been actively pursuing the case for a CBDC, dubbed Britcoin, due to the declining use of cash and the threats to monetary sovereignty posed by private digital currencies.

Euro Area - European Central Bank – Development – Retail and Wholesale

In October 2021, the European Central Bank invited technology experts to take part in online technical talks to explore options for the design of a CBDC. The talks are part of an ongoing CBDC investigation phase instigated by the ECB in July 2021 and set to last two years.

China – People’s Bank of China – Pilot – Retail and Wholesale

In January 2022, it was announced that China's central bank has launched its CBDC wallet app on the Android and Apple app stores to gear up for the forthcoming Winter Olympics. In development since 2014, the Digital Yuan wallet has undergone extensive field testing across the country, with the pilot run handling transactions worth $5.34 billion as of June 2021. The Central Bank states that the CBDC had been used for over 70 million payments across more than 1.3 million scenarios.

Australia - Reserve Bank of Australia – Development – Retail and Wholesale

In December 2021, the Reserve Bank of Australia reported back on the CBDC/DLT syndication project that had been initiated in a year earlier. This collaborative research project into the use of distributed ledger technology in CBDC loan syndication, in association with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software, has demonstrated the potential for significant efficiency gains for business customers and market participants.

I’m not going to post anymore countries as it would be a dis-service to Madhvi’s work. Go and check it out. What I will add is that the CBDC that is most advanced is in China, so here are some useful references on what the PRC refers to as the e-CNY (electronic Chinese Yuan):

PBOC’s detailed report on e-CNY (latest from June):

Page 2 –The e-CNY was designed to rise up to the challenge of mounting cash management costs (1.2) and fraud/money laundering risks from decentralized cryptocurrencies like Bitcoin. (1.3).

Page 6 -The e-CNY system supports interoperability with traditional electronic payment systems. It makes full use of existing financial infrastructures to connect digital wallets of different operators (i.e. Alipay and bank apps) as well as connect e-CNY wallet with bank accounts, thus improving the interoperability of payment instruments. In other words, open and connected should be the key words to describe the relationship between the e-CNY, operators and their digital wallets, rather than a zero-sum game.

Page 7 -The e-CNY is a substitute for M0. Thus, it is treated the same as the physical RMB under M0, which carries and pays no interest.

Page 8 –design of the e-CNY follows the two-tiered model in which the central bank focuses on ensuring the core system is safe reliable and secure, while operators and their digital wallets focus on operational work like distribution and consumer facing services like customer support. This is consistent with BIS’s best practice recommendation of setting up a CBDC, the success of which depends on an appropriate division of labour between the central bank and the private sector. (search for the section “CBDC architectures and the financial system” on the page for details)

Brendan Ahern commenting on Forbes made this comment:

“On Friday the PBOC released a white paper titled “Progress of Research & Development of E-CNY in China”. We now know China’s digital renminbi is going to be called E-CNY. The report noted that 66% of all transactions in China are done via mobile payment according to a 2019 PBOC survey. In a heartbreaker to the conspiracy theorist who viewed the E-CNY as a threat to the US dollar’s dominance, E-CNY will only be available for domestic transactions initially. E-CNY is not a threat to mobile payment wallets such as Alipay or WePay either as it is simply a currency. As M0, it will be non-interest bearing.”

Finally, in a speech delivered in November 2021 via video at a conference of the Bank of Finland Institute for Emerging Economics, China's central bank governor Yi Gang is quoted as saying that the central bank controls the issuance while commercial banks and payment institutions act as intermediaries providing exchange and payment services. Yi specified the country's next steps in digital yuan development, saying that the focus will be placed on establishing a management model with reference to cash and bank accounts, enhancing its efficiency, privacy protection and anti-counterfeiting features, while increasing interoperability with existing payment tools.

Whatever happens, this is an interesting space and oh, btw, CBDCs are nothing like stablecoins or crypto.