Recent announcements have put a spotlight on the CBDC development programmes of major central banks, although stages of advancement vary significantly.
It is very unlikely we will see a major country introduce a fully functional retail CBDC this year1 . That said, central banks, including some of the larger ones, seem to be speeding up their preparatory work. China’s PBoC, for instance, has conducted new tests in several large cities in recent weeks (others may be rolled out shortly in Beijing and Shanghai) while the ECB recently concluded a vast survey to decide whether it will launch a concrete project in the second half of the year (full deployment could happen in 2024 or 2025). While the US Federal Reserve’s communication on the subject remains more cautious2(which does not mean it is not looking closely at the mater), certain central banks of smaller countries (Sweden notably, that is already testing its e-krona) are at a more advanced stage3.
The goal in creating retail CBDCs is to give the public access to a digital currency that retains a certain number of the characteristics of physical currency.
Like physical currency and unlike bank deposits, retail CBDCs will constitute a direct liability for the central bank, eliminating in principle any credit risk for the holder. Depending on the selected architecture (direct or indirect account of the end-holder with the central bank, and/ or a digital token that can be used online or offline, etc.), such currencies could offer (albeit not completely) similar advantages of portability and confidentiality to notes and coins. However, their immunity to different undesirable events would differ (e.g. CBDC and physical currency would not be vulnerable to the same types of criminal activity or disaster).
Among other roles in supporting the digitalisation of the economy, CBDCs would pursue sovereignty objectives.
CBDC projects are part of a general public policy effort around the adaptation to digitalisation and the creation of ecosystems conducive to financial innovation. By reducing the use of physical currency (although to differing degrees depending on the country) and intensifying online exchange in several domains, the Covid crisis has added to the incentives already existing in this area. The relative weight of different motivations to develop CBDCs varies a lot across countries: for instance, in a number of emerging economies, they are seen as a way to improve the financial inclusion of people who cannot easily access the financial system. However, among their various aspects, CBDCs are also perceived as a means for states to preserve (or strengthen) their monetary sovereignty in the face of new challenges. More than with highly volatile cryptocurrencies such as Bitcoin, public authorities seem to be concerned with the development of private retail “stablecoins” (centralised or decentralised digital assets that are pegged to a traditional currency4), as well as with the prospect that foreign CBDC could become easily accessible to their own citizens5. In normal times, and even more so during times of crisis, competition between such alternative currencies could have the effect of eroding the status of a traditional currency, and even lead to destabilising capital movements (both domestic and international)6. The extent and nature of this sovereignty aspect is, however, very different depending on the power of the country concerned and the international status of their currency: serving as a defensive instrument for some, the CBDC could, on the other hand, be used as a means of external influence for others.