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- Few central banks plan to issue a digital currency within five years, but several institutions have already conducted or are in the process of conducting in-depth pilot tests.<\/li>\n
- Early CBDC experiments have shown that private-sector participation is needed to ensure competitiveness and adaptability to technological change.<\/li>\n
- Most CBDC proposals envisage a two-tier monetary system: the central bank issues and controls the base, while licensed intermediaries (banks and other financial institutions) distribute and settle transactions.<\/li>\n
- Assertions that CBDCs will eliminate anonymity are unwarranted. The ECB recently explored anonymizing transactions using ‘anonymity vouchers’ on a blockchain. In blockchain transfers such transactions could be made private.<\/li>\n
- Private stablecoins and CBDCs do not exclude one another, but complement one another.<\/li>\n<\/ul>\n<\/div>\n
Incentives for issuing CBDCs<\/h2>\n
Today, central banks already practice virtual currency issuance, and a large share of payments and transfers is conducted digitally. The differences between CBDCs and the existing system are as follows:<\/p>\n
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- CBDC will simultaneously boost competition and stability in the financial sector as banks encroach on tech firms and cryptocurrencies.<\/li>\n
- CBDCs can boost financial inclusion by offering a new payments infrastructure with lower transfer costs. In addition, central banks will find it easier to operate in a digitised economy.<\/li>\n
- CBDCs will expand the tools of fiscal policy available to regulators \u2014 for example, to avoid the ‘zero lower bound’ trap. Through programmability and transparency, CBDCs make it easier for regulators to monitor deposits and loans at negative rates. More transparent data on payment flows will improve the quality of macroeconomic statistics.<\/li>\n
- CBDCs also stimulate the use of local currency for paying goods and services, which is particularly relevant in countries prone to ‘dollarisation’.<\/li>\n
- ‘Commercial’ version of CBDC (where the digital currency is available only to banks) will reduce settlement risks, provide round-the-clock liquidity for banks, and reduce costs for cross-border transfers, etc.<\/li>\n<\/ul>\n
The IMF tried to illustrate the differences between different forms of money with a radar chart:<\/p>\n
\n![\"How](\"https:\/\/u1f987.com\/wp-content\/uploads\/image1-281.png\")
Researchers from The Block compared different asset types across a range of properties. In their view, CBDC has the greatest potential.<\/figcaption><\/figure>\n<\/div>\n Retail CBDCs<\/h2>\n
The authors of the report outlined the results of the most notable CBDC experiments in several countries:<\/p>\n
\n![\"How](\"https:\/\/u1f987.com\/wp-content\/uploads\/summary-table-final-1024x584.png\")
Click the image to view. Data: The Block.<\/figcaption><\/figure>\n<\/div>\n Although a ‘commercial’ CBDC is seen as a safer option for financial stability, retail CBDC is of more interest to mass users \u2014 a full replacement for ordinary currency, usable for paying goods and services, storing on a bank account, etc.<\/p>\n
One of the first countries to consider CBDCs was Sweden. The reason is the extremely low use of cash (only 5% of household payments relied on cash, while card payments accounted for 60%). Testing of the e-krona began in 2017 (news of plans surfaced a year earlier). After three years of study it moved to the pilot stage. In developing CBDCs, the regulator is aided by Accenture \u2014 it is responsible for payments, deposits, transfers and other functions on the blockchain platform R3 Corda.<\/p>\n
Uruguay, one of the most economically prosperous countries in Latin America, conducted a pilot of its own CBDC (e-peso) from September 2017 to April 2018 among ordinary consumers and businesses. Instead of a distributed ledger, digital wallets managed by the state-owned telecom company Antel were used. The e-peso system included anonymous transactions and offline transfers, and each e-peso ‘note’ bore a unique cryptographic signature. The results are now being evaluated in terms of the feasibility of anonymity for users, the possibility of introducing ‘interest-bearing’ tools, and the overall impact on the economy.<\/p>\n
According to the study, another European country actively developing a ‘retail’ CBDC is Ukraine.<\/p>\n
The National Bank of Ukraine (NBU) successfully tested the ‘digital hryvnia’ over four months in 2018. During the test the NBU issued 5,443 electronic hryvnias, which were used on 79 wallets on smartphones. The wallets could be topped up through the Ukrainian Payment Space system, integrated into the CBDC platform. Users could transfer digital money between wallets, top up the balances of LifeCell mobile numbers, and make charitable donations.<\/p>\n
The platform itself was built on a private version of the Stellar protocol and had two levels: on the first, the NBU controlled the registry unilaterally; on the second, banks and financial institutions controlled operations. Ultimately, Stellar was deemed unsuitable as a basis for a national-scale system, though no replacement was named yet.<\/p>\n
Today, the Ukrainian central bank is examining both centralized and decentralized models for the digital hryvnia. Summarising the experiment at a CBDC conference in February this year, then-head of the NBU Yakov Smoliy said:<\/p>\n
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“We continue to study the possibility of issuing a digital hryvnia and will come back to this issue when we are confident that the initiative is technically feasible and that the digital currency will not hinder the central bank in fulfilling its functions to ensure the currency\u2019s exchange rate and financial stability”.<\/p>\n<\/blockquote>\n
Similar projects were also launched by the Central Bank of the Bahamas (Sand Dollar) and the Eastern Caribbean Central Bank (DXCD<\/a>).<\/p>\n