BIS Shows Progress on Issuing Digital Currencies

A new survey from the Bank for International Settlements (BIS) shows that some central banks are creeping towards issuing their own digital currencies.

A total of 66 central banks responded to the latest survey, which was conducted last year, representing 21 advanced economies and 45 emerging market economies, covering 75% of the world’s population and 90% of its economic output. This was the third consecutive year that the BIS has conducted a survey regarding central bank digital currencies (CBDCs).

The survey asked central banks about two types of CBDCs, “wholesale” and “general purpose”. A wholesale, “token-based” CBDC, is a restricted-access digital token for wholesale settlements, such as interbank payments, or securities settlement. A general purpose variant is one that would be available to the general public, it can be based on tokens or accounts and would be widely available and primarily targeted at retail transactions.

In a paper released today analysing the survey results, the BIS concludes: “One year on, the survey has been a re-run.”

The authors of the paper note that most central banks are still working to understand the implications of CBDCs for their jurisdiction while a “significant minority” are likely to issue a digital currency “very soon”.

However, digging into the data a bit more, there are some significant differences that emerge between the 2018 and 2019 surveys.

For starters, 80% of central bank respondents said that they are currently, or will soon be, engaged in CBDC work, up 10% year-on-year.

In addition, the latest survey indicates that 10% of central banks are likely to issue a general purpose CBDC in the short-term and 20% said that they are likely to in the medium term, in both cases these figures have doubled compared to the 2018 survey. This means that central banks collectively representing a fifth of the world’s population now say that they are likely to issue a general purpose CBDC in the next three years.

Another significant difference was that although more central banks said that they were likely to issue a wholesale CBDC in the medium-term in the 2019 survey, more of them also said that they were unlikely too as well, with more banks that had sat on the fence in the previous survey changing their results the second time round. The authors of the BIS report suggest that this may indicate that research and experiments being conducted by these central banks is helping them to clarify a firm stance on the possibility of issuing a CBDC.

One data point within this that is worth noting though is that EME banks consider themselves more likely to issue CBDCs than their peers in advanced economies.

From the BIS report: “For general purpose CBDCs, every central bank reportedly very likely or likely to issue in the short-term is an EME institution. Over the medium-term, 90% are in EMEs. The difference is also stark for wholesale CBDCs, where all advanced economy central banks consider issuance unlikely or very unlikely over the short and medium term.”

The survey also showed a clear disparity between the motivations for EME and developed economy central banks to develop and issue CBDCs.

EMEs have generally stronger motivations than advanced economies to work on general purpose CBDCs, with domestic payments efficiency, payments safety and financial inclusion, on average, all considered “very important” as a motivation for issuing a CBDC. By contrast, for advanced economies, the only motivation ranked as very important was payments safety.

Overall, the BIS survey suggests that there is less impetus for central banks to issue wholesale CBDCs than general purpose ones. But once again, EMEs reported having stronger motivations than their advanced economy peers for doing so.

“In particular, motivations to improve domestic payments efficiency, payments safety and financial stability are all very important to EMEs. This potentially reflects the fact that some of the smaller respondents have no wholesale, real-time gross settlement system for their currencies,” says the BIS in its report.

For advanced economies, increased efficiency for cross-border payments were identified as the most important motivation for potentially issuing a wholesale CBDC.

One question overhanging all these other points is whether central banks actually have the authority to issue digital currencies. It is here that the 2019 survey data bear a strong resemblance to the 2018 data, with about a quarter of central banks stating that they have, or will soon have, the authority to issue a CBDC, a third stating that they do not have this authority and over 40% saying that they remain unsure on this issue.

“The continued high level of uncertainty is not surprising, given that most central bank mandates predate many forms of electronic money. Additionally, in the absence of any plans to issue a CBDC, central banks may not be able to prioritise a clarification of their mandates,” say the authors of the BIS report.

The release of these survey results comes just days after Profit & Loss reported that the BIS has formed a group with six central banks in developed economies — the Bank of England (BoE), the Bank of Japan (BoJ), the European Central Bank (ECB), the Sveriges Riksbank, the Swiss National Bank (SNB) and the Bank of Canada (BoC) — to assess the potential use cases for CBDCs in their home jurisdictions.

Galen Stops

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