The Bank for International Settlements (BIS) has talked up central bank digital currencies (CBDCs) again, but insists that state-issued tokens would not make cash obsolete – and will instead work alongside fiat.
These were the findings of a new paper entitled “Rise of the central bank digital currencies: drivers, approaches and technologies,” authored by Raphael Auer, Giulio Cornelli and Jon Frost for the bank’s Monetary and Economic Department.
In the paper, Auer et al wrote that none of the existing CBDC designs it looked at “is intended to replace cash; all are intended to complement it.”
And there was good news for commercial banks, whose role could well be diminished by CBDC issuance and its threat to cut out middleman institutions. The authors added,
“Most [CBDC projects] still involve a strong role for intermediaries – although potentially in parallel to direct provision of some services by central banks.”
The authors also took time to praise cash, stating that CBDCs could take a leaf out of banknotes’ book when it comes to widespread adoption.
“Events such as the COVID-19 pandemic highlight the value of access to diverse means of payments, and the need for any payment method to be both inclusive and resilient against a broad range of threats, just as cash is.”
This claim may come across as bizarre to some – particularly in East Asia, where governments have openly promoted contact-free forms of payment, including CBDC projects and local government-issued stablecoins as an alternative to coins and notes.
Despite the claim, the authors conceded,
“During the COVID-19 pandemic, social distancing measures, public concerns that cash may transmit the virus and new government-to-person payment schemes have further sped up the shift toward digital payments, and may give a further impetus to CBDC.”
As a result, the authors wrote that, “CBDCs have seized global attention and feature broadly in central bank communications and public search interest,” but they added,
“Still, no major jurisdiction has decided to issue a retail CBDC, and many open questions remain.”
The paper’s authors produced data showing that central bank speeches on CBDCs have turned distinctively positive since late 2018.
They also spoke about China’s digital yuan project, writing, “Among all current CBDC projects, the one by the People’s Bank of China is at the most advanced stage.”
They also conceded that the token could indeed be used in place of the USD in international trade deals, writing,
“The [digital yuan] could potentially be used for renminbi-invoiced trade with foreign parties, but this is still subject to consultation with other central banks and entities.”