Central bank digital currencies (CBDCs) are in the limelight. But the reasons for issuing them vary between countries, as do the policy approaches and technical designs. This paper looks at the economic and institutional motives behind current CBDC projects and asks how they might shape the design of such currencies.
Researchers at the Bank for International Settlements draw up a database of research and development work, technical approaches and policy stances for the issuance of CBDCs. They assess the policy stance based on a database of more than 16,000 central bank speeches and take stock of actual development efforts, providing a taxonomy of technical designs from all relevant policy and analytical publications published by central banks worldwide.
Next they look at the drivers of CBDC projects by relating development intensity to the economic and institutional differences between countries. Based on public reports and interviews with central bank experts, they set out the policy approaches behind three CBDC projects: China’s Digital Currency Electronic Payments (DC/EP), Sweden’s e-krona and the Bank of Canada’s CBDC contingency plan.
On the drivers for CBDC development, they find that most projects originate in digitized and innovative economies. Retail CBDC work is more advanced where the informal economy is larger. None of the projects surveyed seeks to replace cash, rather aim to offer a digital complement.
On the technical designs, they find that more and more central banks are considering “Hybrid” or “Intermediated” architectures, where the CBDC is a cash-like direct claim on the central bank but the private sector manages all customer-facing activity. Only a few jurisdictions are considering “Direct” designs, in which the central bank takes on some or all of the customer-facing side of payments. At present, no central bank reports that it is pursuing a “Synthetic” or “Indirect” CBDC design.
While central banks are considering various technical infrastructures, current proofs-of-concept tend to be based on distributed ledger technology rather than a conventional infrastructure. Access frameworks tend to be based on account identification rather than allowing for token-based anonymity. Most retail CBDC projects have a domestic focus.