BIS Presents CBDC Project Index, Cites China’s at Most Advanced Stage
The Bank for International Settlement (BIS) has presented a novel central bank digital currency (CBDC) project index (CBDCPI) which puts countries with higher mobile phone usage and higher innovation capacity as having a higher chance to implement it.
The index comes after the BIS examined cross-country drivers of retail and wholesale CBDC development with detailed information on the designs from the People’s Bank of China (PBoC), the Bank of Canada, and Sveriges Riksbank – for which it notes that the PBoC project is at the most advanced stage of all existing CBDC projects even though it is not using blockchain technology.
It cites development efforts in China as dating far back as 2014 through 2019’s pilot study for the Digital Currency and Electronic Payment (DC/EP) project which was confirmed in 2020 to be ongoing in Shenzhen, Suzhou, Chengdu, Xiong’an and the “2022 Winter Olympics Office Area” in Beijing. It tags the introduction of a CBDC in China along the highly digitised economy and widespread use of private digital payment services context which “may have far-reaching implications” for the most populous nation and the world’s second largest economy.
China’s CBDC is expected to provide a convenient complement to M0 which includes banknotes and coins, as well as central bank depository accounts and cash for use in online transactions but not intended to fully replace physical cash. BIS also expects it to bring more diversity to the current mobile payments duopoly of Alipay and WeChat Pay which collectively control 94% of the market for mobile payments.
The Working Paper No. 880 includes an analysis of the stance towards issuance among 16000 speeches by central bank officials and the BIS’ conclusion that retail CBDCs are more likely to be deployed where there is a larger informal economy while wholesale CBDCs would suit more advanced economies with higher financial development.
Aside from highlighting drivers, technologies and policy approaches, the paper also pursued technical designs, examining how central banks are involving the private sector in their CBDC design, employing conventional or DLT-based infrastructure, opting for account-based access or privacy-preserving tokens, and whether their focus is on domestic or international payments.
While it notes that 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, it outlined why CBDC projects differ across countries in their motivations, economic and technical design.
“In countries where digital payments are already very advanced, and cash use is declining, central banks may respond in particular to ensure the ongoing availability of a public sector-provided means of payment,” it states. “In countries with a lower penetration of digital payments, financial inclusion may be an important driver. The choice of architectures, infrastructures, access and interlinkages will be tailored to fit local circumstances.”
Meanwhile, some identified key common features includes that none of the designs surveyed is intended to replace cash but to complement it; most still involve a strong role for intermediaries – although potentially in parallel to direct provision of some services by central banks; none of them is pursuing the indirect model where a CBDC is a claim on intermediaries rather than on central banks.