Projects of public digital currencies enjoy high priority among central banks. In the emerging markets, in particular, these are being pushed forward – for a specific reason.

A full 86 percent of central banks surveyed by the Bank for International Settlements (BIS) are currently engaged in studies or concrete projects for the introduction of a digital central bank currency (a so-called CBDC), the BIS writes on a survey published on Thursday. Compared to the first CBDC survey in 2017, this represents an increase of one-third. 65 central banks participated in the survey.

In other words, digital central bank currencies have «arrived». However, the intensive research and concrete project work do not mean that the world will soon have access to a variety of digital currencies, the authors noted. In fact, as many as 60 percent of central banks say that the introduction of such a currency is unlikely in the near or medium future.

Access to Financial Services

Nevertheless, one bank has already put its money where its mouth is. As finews.com reported, the Central Bank of the Bahamas launched the so-called Sand Dollar last year for its 390,000 inhabitants. However, the motivations and the size of both the country and its economy exemplify the different developments the various projects are taking.

What is particularly important for the Bahamas is better access to financial services for segments of the population that have had little access to date – a key goal of the modernization strategy is to provide the entire population with digital payment systems, as the Central Bank of the Bahamas emphasized.

Fear of Weakening Monetary Policy

Another goal of the sand dollar project is to include non-banks in the domestic payment system. In addition, the central bank hopes that the Sand Dollar will eliminate the cost of handling cash.

In other words, the institutions of countries that have rather weak banking sectors and tend to have more people considered poor have a specific interest in better integrating their citizens into the circuit of the economy by means of the introduction of new types of digital instruments.

At the same time, representatives of emerging markets and smaller countries are particularly concerned about actively countering a weakening of their monetary policy. The authors of the study explicitly mention the danger to such states of widespread use of a private digital alternative to the official currency.

This so-called «digital dollarization» was also mentioned in the context of central bank projects in developed but still small and open countries (such as Switzerland and Sweden), but according to the study seems to be of particular concern to authorities in emerging markets.

«Wholesale» vs. «General Purpose»

All have the motivation to ensure secure and efficient payment systems. And this certainly seems to be on the minds of the survey participants, because within a year, the proportion of those who have moved from the conceptual phase to the next proof-of-concept phase has risen from 42 percent to 60 percent. 14 percent are engaged in pilot projects.

The survey distinguishes between so-called «wholesale» CBDCs and «general purpose» CBDCs. Emerging markets, which are most likely to launch a digital currency, are generally interested in a «wholesale» CBDC, i.e. a currency for the masses (see Sand Dollar). The situation is quite different in a country like Switzerland, which has an extremely well-functioning banking system. There, the work of the Swiss National Bank (SNB) is moving in the direction of «wholesale», i.e. an e-franc for the financial market.

Concrete Implementation a Work in Progress

The motivation for such banks lies on the one hand in efficiency gains for the financial market, but also explicitly in the expected benefits for cross-border payment transactions. The SNB in particular has repeatedly emphasized that it does not want to change the two-tier financial system with a central bank and commercial banks by introducing an e-franc for normal citizens.

In summary, the BIS study shows that the vast majority of central banks are now involved in concrete projects, but that actual implementation is likely to take some time – also for legal reasons. Those pushing hardest on the gas pedal seem to be active in countries where the population is undersupplied with financial products.