A report published today by the Official Monetary and Financial Institutions Forum (OMFIF) and IBM found that a large majority of central bank respondents are concerned about fast bank runs and digital currencies (CBDCs). The two surveyed 23 central banks regarding retail CBDCs on their stability and development.
IBM and OMFIF worked together almost precisely a year ago on a wholesale CBDC report. Back then, they found that distributed ledger technology (DLT) could significantly streamline processes, particularly real-time gross settlements (RTGS). Now, in a very different payments landscape, they have explored retail CBDCs.
“The concept of retail CDBCs has moved rapidly from being the thought experiment of technical experts and philosophers to the subject of boardroom debates focused on tangible, near-term reforms,” said Philip Middleton, OMFIF deputy chairman.
Of the 23 participating central banks, 13 are from advanced economies and ten from emerging markets. Unsurprisingly, private digital currencies like Libra took center stage. The report mentions comments from the Bank of International Settlements (BIS), US Congress, the European Central Bank (ECB), and two of Mark Carney’s speeches.
Over half of those surveyed were “very concerned” that private CBDC challengers would “critically undermine monetary sovereignty”.
An unnamed central bank respondent said: “There is a concern that multiple private digital currencies could emerge in a competition to issue an alternative digital currency, gain adoption, and earn the resulting seigniorage… This is concerning because any adoption of an alternative unit of account will erode the central bank’s ability to conduct monetary and financial stability policy.”
The research then looked at China’s upcoming consumer CBDC. Also today, we reported on China’s likelihood to be the first central bank to issue such a currency, thanks to a reach of 1.4 billion people with mobile payment systems.
The IBM and OMFIF report goes further; according to the People’s Bank of China, mobile transaction volume has increased from 1.7 billion in 2013 to 61 billion in 2018. Rumored issuers Alipay and WeChat Pay account for 93% of these transactions.
Other survey highlights include:
- 73% would require retail CBDCs to be available wherever cash is currently used
- 82% said their primary financial stability concern was the high speed of digital bank runs
- 83% thought their role as a central bank would not change significantly with CBDCs
- 64% said outsourcing functions like customer onboarding would be important for retail CBDCs
- 64% prefer a value-based CBDC to an account-based CBDC due to its similarity to cash
- 60% expressed concern that cross-border frictions would hinder CBDC issuance
- 43% were looking at strictly domestic use cases for CBDCs
- 45% thought an interest-bearing CBDC would bring a risk of reduction in commercial bank money
- Respondents said remaining competitive in payment systems and modernizing cross-border payments were the two most important reasons for retail CBDCs
- The survey predicts that a retail CBDC will be launched in the next five years
“Central banks surveyed are interested in positioning themselves to launch their own retail CBDCs, as the findings of this report make clear,” said Saket Sinha, global VP, IBM Blockchain Financial Services.
“Large banks and technology companies will have a major role to play as new public-private partnerships are formed to promote interoperability, create services, and extend financial inclusion.”