13 October 2022

SUERF's Kosse and Mattei: The potential of central bank digital currencies for cross-border payments

This Policy Brief presents the key findings of a survey of central banks about their engagement in central bank digital currency (CBDC) and it discusses these findings in the context of cross-border payments. Nine out of 10 central banks are exploring CBDCs and more than half consider it likely or possible they will issue a CBDC in the foreseeable future.

 Work on CBDCs is increasingly driven by motivations related to cross-border payments efficiency. Many cross-border payments today are slow, expensive, opaque and difficult to access. Central banks believe CBDCs are capable of alleviating some of the underlying pain points, such as the limited operating hours of current payment systems and the length of current transaction chains. For CBDCs to improve cross-border payments, however, central banks must make fundamental decisions on foreign access and how CBDCs connect across jurisdictions.

Introduction

Central banks have shown an increasing interest in CBDCs over the past years (Boar and Wehrli (2021)). A CBDC is a central bank-issued digital form of money. When intended for use by the general public for storing value and making payments, it is referred to as a “retail” CBDC. A “wholesale” CBDC targets a different group of end users – financial institutions (Bank for International Settlements (2021)).

In addition to safeguarding and improving financial inclusion, financial stability and domestic payments efficiency, retail and wholesale CBDCs could play an important role in addressing long-standing challenges in the cross-border payments market (CPMI et al (2021)). An ambitious, multi-year G20 programme is under way to make cross-border payments faster, cheaper, more transparent and more accessible. One of the building blocks of this G20 programme is tasked with exploring how to factor an international dimension into CBDC design.1 As part of this work, the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI), BIS Innovation Hub (BISIH), International Monetary Fund (IMF) and World Bank (WB) published a G20 report in July 2022 that presents different design options that would allow a CBDC to be used across borders (CPMI et al (2022)).

Leveraging the work of Kosse and Mattei (2022), this Policy Brief summarises the results of the latest Bank for International Settlements’ survey among central banks about their engagement in CBDC work, as well as their motivations and expectations for issuing one. This survey was conducted in the autumn of 2021, for the fifth consecutive year.2 It was answered by a record 81 central banks, whose jurisdictions represent about 75% of the world’s population and nearly 95% of global economic output. Based on the July 2022 G20 report of the CPMI, BISIH, IMF and WB, this Policy Brief then discusses how the cross-border potential of CBDCs could be fully harnessed.

Central banks’ work on CBDCs continues to advance

Over the past years, central banks’ work on CBDCs moved into more advanced stages. In 2021, the share of central banks actively engaged in some form of CBDC work grew to 90% (Graph 1, first panel). Also, an increasing number of central banks are in the advanced stages of exploring a CBDC. On average, the share of central banks developing a CBDC or running a pilot almost doubled from 14% to 26%. More than 60% are conducting experiments or proofs-of-concept. The work on retail CBDCs is at a more advanced stage than the work on wholesale CBDCs. Almost one fifth of central banks are developing or testing a retail CBDC, which is twice the share of central banks building or piloting a wholesale CBDC (second panel).

More than half of central banks consider it a possibility that they will issue a CBDC in the foreseeable future (third panel). Overall, the share of central banks that indicated to be likely or possible to issue in the short or medium term is larger for retail CBDC (68%) than for wholesale CBDC (54%). Also, as in previous years, this likelihood is generally higher for emerging market and developing economies (EMDEs) than for advanced economies (AEs).

The issuance of a CBDC requires a legal framework that provides central banks with the authority to do so. Compared with last year, the share of central banks with such a legal authority increased from 18% to 26%. In addition, about 10% of jurisdictions are currently changing their laws (fourth panel). Thus, more than a third of central banks will soon have legal authority to launch a CBDC.

¹Each bar represents the percentage of respondents that is likely/possible/unlikely to issue a CBDC either in the short term (1–3 years) or in the medium term (1–6 years). “Likely” combines “very likely” and “somewhat likely”. “Unlikely” combines “very unlikely” and “somewhat unlikely”. Source: Kosse and Mattei (2022).

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