Central Bank Digital Currency (CBDC)
Overview
A central bank digital currency (CBDC) is a digital currency issued by a central bank. In contrast to crypto assets and stablecoin projects like Diem, CBDCs are issued by the public sector. Therefore, CBDCs have a lower degree of risk than other types of digital money issued by the private sector. CBDCs can be divided into two categories: wholesale and retail CBDC. A wholesale CBDC is only available to banks and is similar to the existing digital central bank reserves. A retail CBDC grants end-users access to digital central bank money and can be used as an additional means of payment besides cash and commercial bank money.
CBDC-related resources
Eurosystem launches digital euro project
Press Release
During the project’s investigation phase, the Eurosystem will focus on a possible functional design that is based on users’ needs. It will involve focus groups, prototyping and conceptual work. The investigation phase will examine the use cases that a digital euro should provide as a matter of priority to meet its objectives: a riskless, accessible, and efficient form of digital central bank money.
The project will also shed light on the changes to the EU legislative framework which might be needed and that will be discussed with, and decided by, European co-legislators. The ECB will continue to engage with the European Parliament and other European policymakers throughout the project’s investigation phase. The technical work on the digital euro with the European Commission will also be intensified.
German Banking Industry Committee presents policy paper on “digital euro”
Report
In a policy paper, the German Banking Industry Committee (GBIC) for the first time sets out detailed thoughts on the design of a “digital euro”. In this paper, experts from Germany’s five national banking associations draw up an ecosystem of innovative forms of money that extends far beyond the idea of digitalised central bank money, which is referred to as Central Bank Digital Currency (CBDC). The ECB will probably launch the project for a digital euro in mid-July 2021.
Eurosystem report on the public consultation on a digital euro
ECB/Eurosystem Report
On 2 October 2020 the Eurosystem published its “Report on a digital euro”. The report formed the basis for seeking wider views on the benefits and challenges of issuing a digital euro and on its possible design. The report was followed by the “Public consultation on a digital euro”, which was
launched on 12 October 2020 and ran until 12 January 2021. The consultation included 18 questions aimed at collecting the views of both citizens and professionals. The first part was aimed mainly at citizens in their role as users, while the second targeted primarily financial, payment and technology professionals with specific knowledge of the economics, regulation and technology of (retail) payments.
Synthetic central bank digital currency (sCBDC) — Public private CBDC collaboration
Medium
Central bank digital currencies (CBDCs) more and more approach reality. One special form of a CBDC is a synthetic CBDC (sCBDC). In such a setup, the CBDC system is not directly managed by the central bank, but a wide range of tasks is outsourced to private companies, such as e-money institutes. In the case of such a private public partnership, financial institutions fully back e-money with riskless central bank money. This results in a synthetic CBDC, a digital form of (e-)money that is fully backed by riskless central bank money. In this article, we explain and discuss such an sCBDC system in the context of the Euro area and compare it to a “classical” CBDC system.
Report on a digital Euro
ECB Paper
This report examines the issuance of a central bank digital currency (CBDC) – the digital Euro – from the perspective of the Eurosystem. Such a digital euro would be a central bank liability offered in digital form for use by citizens and businesses for their retail payments. It would complement the current offering of cash and wholesale central bank deposits.
The possible advantages of a digital euro and the rapid changes in the retail payment landscape imply that the Eurosystem needs to be equipped to issue it in the future. A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world. This would support Europe’s drive towards continued innovation. It would also contribute to its strategic autonomy by providing an alternative to foreign payment providers for fast and efficient payments in Europe and beyond.
The Digital Euro and the Role of DLT for Central Bank Digital Currencies
Medium
Digitization has reached the monetary system. The advent of crypto assets, such as Bitcoin and Ether, revealed numerous advantages these digital assets based on distributed ledger technologies (DLTs) can bring: Using DLT can enhance the security of sensitive financial transaction data, increase transaction speed through faster processing and settlement and automate numerous business processes through smart contracts. These advantages ought to be realized in the conventional monetary system as well — not only in the “crypto industry”. DLT can be used both to digitally represent bank deposits and to tokenize central bank money via central bank digital currencies (CBDCs). Current DLT-based CBDC projects and prototypes among others by the Chinese and Swedish central banks, but also initiatives by the European Central Bank (ECB), show that DLT will be an essential pillar ofthe digitization of the monetary system in particular and the financial system in general in the future.
How Will Blockchain Technology Transform the Current Monetary System?
Medium
Why should the payment systems we use and the money that is transferred via these systems itself make use of distributed ledger technology (DLT), namely Blockchain technology, the underlying technology of cryptocurrencies such as Bitcoin? This article gives a brief explanation of the structure of the current money and payment system and the functioning of blockchain technology with Bitcoin as an example. It further elaborates the advantages of DLT and its difference to the current design of the monetary system. The last chapter summarizes the different ways of how DLT can be used in our current money and payment system.
The Digital, Programmable Euro: Statement by the FinTech Council of the German Federal Ministry of Finance
Medium
On July 23, 2020, the FinTech Council of the German Federal Ministry of Finance (German: FinTechRat des Bundesministerium der Finanzen) published a statement about the digital, programmable Euro. With this article, we provide an unofficial translation of the German version of the paper with the goal to make the content also available to non-German speaking readers. More information can be found on the website of the German Federal Ministry of Finance.
Current CBDC Projects
According to a study by the Bank for International Settlements (BIS), 80% of worldwide central banks are researching or working on introducing a CBDC. Nevertheless, to date, no retail CBDC has been introduced yet. However, 10% of the surveyed central banks are likely to introduce a retail CBDC in the short-run (up to three years) and 20% in the medium-term (up to six years). The following section discusses current CBDC pioneers that are likely to introduce a CBDC soon.
Which jurisdictions head up the retail central bank digital currency league table?
Medium
While much attention is focused on the retail central bank digital currency (rCBDC) ruminations of China, Europe and the United States, aside from China, smaller jurisdictions are actually leading the way. Although the People’s Bank of China launched their rCBDC pilot in April 2020, Banco Central del Uruguay completed its first pilot already in April 2018, the Central Bank of the Bahamas fully launched their Sand Dollar in October 2020, and the Eastern Caribbean Central Bank launched a pilot in March 2021. In this article, we take a deep dive into these leading rCBDC efforts.
China’s digital currency project: What is DC/EP all about?
Medium
Central bank digital currencies (CBDC) are becoming reality. On 16 April 2020, the Chinese central bank has started the test phase of its CBDC, called Digital Currency / Electronic Payment (DC/EP). It is currently tested in four Chinese cities: Shenzhen, Suzhou, Chengdu, and Xiong’an. China might be the first industrial economy worldwide to introduce a CBDC. This article outlines the current status of the DC/EP project and its economic and social implications.