26 August 2020

Rise of the central bank digital currencies: drivers, approaches and technologies

Central bank digital currencies (CBDCs) are receiving more attention than ever before. Yet the motivations for issuance vary across countries, as do the policy approaches and technical designs. A new report published by BIS investigates the economic and institutional drivers of CBDC development and takes stock of design efforts. It sets out a comprehensive database of technical approaches and policy stances on issuance.

The questions this paper aims to answer are:

  • What are the economic and institutional drivers for issuing CBDCs?
  • How do central banks approach the issues?
  • What are the technical solutions sought?

To answer these questions, the authors first develop a CBDC project index based on central bank research and development (R&D) projects. They then empirically investigate common factors in countries that are investigating and piloting CBDCs.

Findings show that that higher mobile phone usage (a measure of an economy’s overall digitisation) and higher innovation capacity are positively associated with the likelihood that a country is currently researching or developing a CBDC.

Retail CBDCs are more likely where there is a larger informal economy, and wholesale CBDCs are more advanced in economies that have higher financial development.

Design features

On analysis of four attributes of CBDC technical designs following the taxonomy of Auer and Böhme (2020), the report finds:

  • A rising number of central banks are considering “Hybrid” or “Intermediated” architectures where the CBDC is a cashlike direct claim on the central bank, but the private sector manages customer-facing activity.
  • Only a small number of jurisdictions are considering designs in which the central bank takes on an important operational role in the customer-facing side of payments.
  • None of the central bank reports favour a design with indirect claims on the central bank (referred to as an “Indirect” or “Synthetic” CBDC architecture).
  • Whereas many central banks are considering multiple technological options simultaneously, current proofs-of-concept tend to be based on distributed ledger technology (DLT) rather than a conventional technological infrastructure.
  • Access frameworks tend to be based on account identification rather than allowing for token-based fully anonymous access.
  • Most CBDC projects have a domestic focus.

The report examines how the features of these CBDCs fit with each other and the unique economic structures and preferences of their populations. It illustrates how the circumstances of each jurisdiction also matter for the policy approach taken to researching and developing a CBDC and concludes with an in-depth description of three distinct CBDC approaches by the central banks of China, Sweden and Canada.

This publication is available on the BIS website here.

  • Published 24 August 2020. BIS Working Papers. No 880. Monetary and Economic Dept.
  • Authors: Raphael Auer, Giulio Cornelli and Jon Frost

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