18 March 2021

SUERF: CBDC: Where is the unique selling proposition?

It is not yet clear from the CBDC prototypes outlined so far what their unique selling proposition over existing systems might be. This suggests that the perspective of potential users is largely ignored and CBDC projects risk the failure to assert themselves in the existing payment ecosystem.

Research on central bank digital currency (CBDC) has gained impressive momentum recently. While the motivations for issuing retail CBDC are different for advanced and developing/emerging economies, in both cases CBDC would become part of the respective existing payment ecosystem. We identify a lack of systemic analysis that would be necessary to discuss the role of CBDC within the existing payments ecosystem and the inefficiencies central banks intend to specifically address. At the same time, it is not yet clear from the CBDC prototypes outlined so far what their unique selling proposition over existing systems might be. This suggests that the perspective of potential users is largely ignored and CBDC projects risk the failure to assert themselves in the existing payment ecosystem. This paper provides a systemic analysis of the existing payment ecosystems in advanced and developing/emerging economies and discusses CBDC proposals from the perspective of potential unique selling propositions vis-à-vis existing subsystems.

1. Introduction

As a recently updated BIS survey (Boar and Wehrli 2021) shows, more and more central banks around the world are engaged in Central Bank Digital Currency (CBDC). According to the survey, the main motivations of central banks are

• in advanced economies: payments safety/robustness and domestic payments efficiency,
• in developing and emerging economies: financial inclusion is the most important motivation followed also by payment efficiency with a domestic focus.

With this focus on the payment system, it is surprising that central banks have so far not clearly elaborated which inefficiencies they intend to specifically address with CBDC. At the same time, it is not yet clear from the CBDC prototypes outlined so far, what their unique selling proposition over existing systems might be.

This shortcoming reflects two fundamental problems with the CBDC discussion to date. First, there is a lack of systemic analysis needed to discuss the role of CBDC within the existing payments ecosystem. Second, the perspective of potential users is largely ignored. In Bofinger and Haas (2020) we address these issues by providing a systemic taxonomy of the payment system and an extensive discussion of different CBDC design options and proposals.

The focus of the following analysis is on the use of CBDC in developed economies. Nonetheless, the specific aspects arising for developing and emerging economies are also addressed.

2. CBDC for advanced economies

For a systemic analysis of the role of CBDC in advanced economies, it is useful to first look at the existing retail payment ecosystem (Figure 1). It consists of several coexisting subsystems with the commercial bank payment system at its center. The central role of commercial banks derives from the fact that bank deposits are the dominant means of settlement for the other subsystems and that cash can only be generated by withdrawals from a bank deposit.
In principle, almost all financial services can be provided by the commercial bank payment system. The stable coexistence with the other systems shows that these must have unique selling propositions....

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