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New research from the Bank for International Settlements (known as the BIS) points to evidence that central banks are looking to integrate a central bank digital currency (CBDC) into their financial and economic operations.
What is a central bank digital currency?
A central bank digital currency is a digital money that is holds the same value as the national unit of the bank issuing the currency. It is intended for use by the public and offers both a store of value and a way of making payments and transacting. CBDCs stand to work along with traditional forms of currency, such as with online banking and cash, but is different from cashless payments (including credit transfers, direct debits, card payments, and e-money).
Are central banks testing CBDCs?
According to a paper released by the BIS and its Monetary and Economic Department, of the 81 central banks surveyed between October and December of last year, a whopping 90% confirmed that they were engaged in some form of work to test or introduce a CBDC. 26% of the surveyed banks said they were running pilots to test a CBDC in their country and 60% stated that they were doing experiments to test proofs-of-concept related to a bank-associated cryptocurrency.
Nine out of 10 respondent #CentralBanks are engaged in some form of CBDC work, according to the BIS CPMI survey. The share developing or piloting CBDC has almost doubled on year, to 26%, while six out of 10 are doing experiments or proofs-of-concept https://t.co/aQhcWCT5g0 pic.twitter.com/7Tk2UkZpVv
— Bank for International Settlements (@BIS_org) May 6, 2022
According to the BIS, this interest in implementing a CBDC in a country has increased by almost 85% since 2020. This correlates with the global pandemic, as countries and retailers across the globe made the rapid shift towards digital solutions. A CBDC not only offers a digital version of a currency, with the benefits of blockchain, but also adds in an enormous level of potential related to global payments (and cross-border transactions) as well as alleviating some of the issues related to banking as it stands.
According to the BIS:
“Globally, more than two-thirds of central banks consider that they are likely to or might possibly issue a retail CBDC in either the short or medium term. Work on wholesale CBDCs is increasingly driven by reasons related to cross-border payments efficiency. Central banks consider CBDCs as capable of alleviating key pain points such as the limited operating hours of current payment systems and the length of current transaction chains.”
The increasing adoption of the CBDC
In 2021, CBDCs gained momentum, with the first country to launch a live CBDC in their country – the Sand Dollar was issued by the central bank of The Bahamas. Since then, Nigeria has launched the Naira, and other countries are looking to follow suit with testing and pilot programmes emerging consistently across the globe. 2021 also saw a strong increase in the stable coin market in the cryptocurrency industry. According to paper released by the BIS, nearly 60% of central banks surveyed cited this part of their accelerated work on CBDCs.
As more countries look to add or test a CBDC, there has also been an increased number of central banks that are in advanced stages of integrating a CBDC into their operations. According to the BIS, banks that are in the process of developing a CBDC or running a pilot to test a digital currency has increased from 14% to 26% in the last year.