Central banks worldwide are embracing the potential of digital currencies, aiming to secure the future of retail payments and mitigate the dominance of private-sector digital transactions amid the decline of cash. A survey conducted by the Bank for International Settlements (BIS) revealed that nearly two dozen central banks across emerging and advanced economies are expected to introduce their digital currencies into circulation by the end of the decade.
The central banks' pursuit of digital currencies is primarily focused on retail use, ensuring accessibility and convenience for the general public. The Bahamas, the Eastern Caribbean, Jamaica, and Nigeria have already set the pace by successfully implementing digital retail currencies. The survey conducted in late 2022 by the BIS, encompassing 86 central banks, indicated that eleven more central banks are likely to join their ranks.
Additionally, central banks are exploring wholesale versions of digital currencies for interbank transactions, opening up new possibilities for financial institutions. Nine central banks are considering the launch of Central Bank Digital Currencies (CBDCs) in the wholesale sector, with the potential to revolutionize financial operations through tokenization.
One of the key motivations for central banks in their pursuit of wholesale CBDCs is the improvement of cross-border payments. The ability to enhance the efficiency and speed of international transactions has become a significant driver for the development of digital currencies, as highlighted by the BIS report.
Several notable central banks are already making significant strides in their digital currency endeavors. The Swiss National Bank plans to pilot a wholesale CBDC on Switzerland's digital exchange, while the European Central Bank is progressing towards its digital euro pilot, with a potential launch anticipated in 2028. China has been actively testing its digital currency, with over 260 million people participating in pilot programs. Furthermore, India and Brazil, as major emerging economies, have plans to launch their digital currencies next year.
The BIS survey also unveiled that 93% of central banks engaged in some form of CBDC-related work, with 60% citing the accelerated influence of stablecoins and other cryptoassets as a contributing factor. While the crypto market has experienced fluctuations and challenges, including the failures of certain stablecoins and exchanges, it has not caused significant disruptions to traditional financial markets. However, these developments have prompted sell-offs in various cryptoassets.
Around 40% of respondents stated that their central banks or institutions had recently conducted studies on the usage of stable coins and other cryptoassets among consumers and businesses. The survey cautioned that widespread adoption of cryptoassets, including stablecoins, could pose a threat to financial stability.
The global landscape of digital currencies is rapidly evolving, with central banks recognizing their potential to reshape the future of payments. As central bank digital currencies continue to gain momentum, we can anticipate a transformative shift in financial systems, opening up new opportunities for secure, efficient, and inclusive digital transactions.