Policy-makers report progress in CBDC exploration

Policy-makers at the Central Banking Asia Summit, held in collaboration with Bank of China in Bangkok on July 24–25, offered a glimpse into their latest thinking on central bank digital currencies (CBDCs).

Although many central banks are looking into issuing CBDCs, how they approach the technology may vary depending on their domestic needs and regional partnerships.

A central banker from the Caucasus said their institution had been carrying out CBDC research for the past two years and had identified some potential use cases, such as programmability, tokenisation and smart contracts.

Last year, the bank selected a technology service provider out of around 100 contenders to help with testing several selected use cases, before finally deciding on whether it would issue a CBDC.

“We are actually transitioning from the ‘why CBDC?’ question to the ‘how’ question,” the banker said. “You cannot actually decide only based on theoretical research whether you are announcing a CBDC as legal tender or not.”

One key takeaway from the research, according to the banker, was that regulators would need to think about how they could allow new technologies to be more inclusive in the Web3 era, as opposed to the “winner-takes-everything business model” of the past.

The banker added that introducing a CBDC had the potential to serve multiple goals, such as promoting financial inclusion and innovation, and fostering competition in the payments sector.

A central banker from an African nation said their institution had been carrying out research on a multilateral CBDC with several neighbouring countries. They claimed that, over time, this had made more progress than the bank’s domestic CBDC project.

The banker noted that countries within the Southern African Development Community can already access SADC-RTGS, the region’s cross-border real-time gross settlement system, which is operated by the South African Reserve Bank.

However, the banker also pointed out that the costs of cross-border payments within the region remained high. The banker felt that having a multilateral CBDC within their region could lower cross-border payments costs: “At the moment we have a bit of restriction, we have limitations. So we want to make sure that reforms, such as introducing a CBDC, will really stand to benefit the continent.”

A central banker from the Gulf said their institution had been researching CBDCs for years and was planning to roll out a wholesale CDBC pilot scheme this year.

However, this banker said introducing a CBDC could have a negative impact on commercial banks’ business and revenues, and that it was important for policy-makers to address this issue with the relevant stakeholders.

“As of today, cross-border payments are operated by the commercial banks,” said the banker. “This role will change from commercial banks to the central banks with the potential implementation of CBDCs.”

An official from an Asian central bank that has already conducted research into launching a CBDC said it was not planning to go ahead with a pilot at the moment. The banker said cash was still prevalent in their country and that many people on lower incomes still avoided using digital payments because of concerns that online transactions would involve scams.

This banker said their institution had been trying to encourage people to use digital payments and cards. However, the country was still trying to come out of an economic crisis and developing a CBDC would incur some costs: “That is something that has prevented us from going into the project immediately.”