WEF Says 98% of Central Banks Are Exploring CBDCs

A recent study conducted by the World Economic Forum (WEF) on central bank digital currencies (CBDCs) found that 98% of global central banks are exploring CBDCs to improve access to central bank money (CeBM) and enhance its modernization.

Many are asking if CBDCs are the key to a more efficient global financial system?

CBDC stands for central bank digital currency. It is a digital form of fiat money, like USD, GBP, or EUR. CBDCs fall into two main types: retail and wholesale.

Retail CBDCs are meant for regular people and businesses to use in everyday transactions, while wholesale CBDCs (wCBDCs) are tailored for financial institutions and function much like central bank reserves.

CBDCs Empower Banks

According to the WEF’s study, CeBM could bring benefits like eliminating credit and liquidity risks, facilitating final settlements, and promoting financial stability.

The study also identified several problems with the current system, including inefficiency in cross-border securities settlements due to “disparate settlement cycles.” Different regions have limited windows for real-time settlements, hindering global market integration.

The report suggested that wCBDCs could help address this challenge by creating a global system that would operate with a near 24/7 global settlement window. This would extend the reach of existing RTGS systems and improve cross-border transactions.

“Central banks are modernizing real-time gross settlement (RTGS) systems – the predominant wholesale funds transfer system – and wholesale CBDC (wCBDC) represents an opportunity to address existing and emerging industry challenges across interbank payments and securities transactions,” wrote the study.

Way More Financial Control is Coming

The study noted that CBDCs could help make financial systems more efficient and secure, but such benefits can only be achieved through collaborative partnerships worldwide while building efficient and secure financial systems.

In other words, establishing public confidence and trust in CBDCs is crucial, achieved through transparent communication regarding their design, advantages, and risks to alleviate concerns and secure public acceptance.

Collaboration between the public and private sectors is pivotal for the effective design and implementation of future CBDCs, fostering stronger cooperation for successful outcomes. Addressing interoperability issues will require collaboration and coordination among countries to ensure seamless integration.

Most central banks believe CBDCs have the potential to bolster monetary sovereignty by granting central banks greater authority over the monetary system and furnishing them with more efficient tools to execute monetary policy.

Besides, CBDCs can potentially enhance payment systems’ efficiency, speed, and reliability by utilizing innovative technologies like Distributed Ledger Technology (DLT) or blockchain. By offering a secure and direct central bank-supported payment method, CBDCs can diminish counterparty and settlement risks, thus improving the overall stability of the payment system.

However, introducing a CBDC brings forth new cybersecurity and operational risks. As a digital currency, CBDCs could be susceptible to cyberattacks, fraudulent activities, or operational malfunctions, potentially causing disruptions in the financial system’s operations.

CBDCs Will Come to The Market

Developing CBDCs involves consideration of technological aspects such as choosing between centralized or decentralized architectures, permissioned or permissionless networks, and utilizing Distributed Ledger Technology (DLT) or other alternatives, all of which must align with project goals.

The investigation into central bank digital currencies (CBDCs) has seen a notable surge in interest globally. With more than 100 countries actively researching and developing CBDCs, there is increasing acknowledgment of their potential as transformative assets in digital payments.

9 countries and the ECCU have launched CBDCs, 38 countries have pilot programs, and 67 countries are researching CBDCs. The Asia-Pacific (APAC) area hosts the highest count of countries where CBDC pilot programs have been initiated. These include Japan, South Korea, China, Hong Kong, India, Singapore, Thailand, Malaysia, and Australia.

Around three countries have launched CBDCs, including the Bahamas, Jamaica, and Nigeria, with the Eastern Caribbean Currency Union (ECCU) halting its due to technical issues. Many G20 countries are exploring CBDCs, including all BRICS nations—Brazil, Russia, India, China, and South Africa—included.

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