Last year, 93% of central banks engaged in some form of CBDC work—not only marking a significant rise from previous years, but also a reflection of the growing acceptance and potential of CBDCs, according to data from the Bank for International Settlements (BIS).
Retail CBDCs Are Gaining Traction
Retail CBDCs are taking the lead in terms of development, with nearly a quarter of central banks currently piloting or exploring the implementation of a retail CBDC. A retail CBDC is a government-backed digital currency used by consumers and businesses. It’s akin to a digital form of cash, the provision of which is a core responsibility of central banks.
According to BIS, there are currently four live retail CBDCs circulating in the world, and they’re in the Bahamas, the Eastern Caribbean, Jamaica, and Nigeria. By 2030, there could be up to 15 retail CBDCs and nine wholesale CBDCs circulating.
A Race to the Top
Competition with cryptocurrency platforms, as well as the volatility caused by the collapse of FTX, are the driving forces behind CBDCs. Approximately 60% of central banks surveyed by BIS reported that the emergence of crypto assets and stablecoins has accelerated their work on CBDCs. This has caused central banks to expedite their efforts in developing digital currencies that can provide stability and regulatory oversight.
The U.S. Federal Reserve has been exploring the potential benefits and risks of CBDCs from a variety of angles, including through technological research and experimentation. PaymentsJournal recently reported on a monthslong test on a digital dollar by the Fed’s New York Innovation Center, which found that digital currency is technically and legally possible—and could improve payments in certain cases. However, the Fed has not concluded whether it will pursue one or not.