Central banks progress GovCoins ambitions

July 2023: The latest survey by the Bank for International Settlements (BIS) shows that central banks are increasingly working on Central Bank Digital Currencies (CBDCs), or GovCoins, with 93% of central bank’s surveyed stating they are engaged in the area and more than half are already experimenting or working on pilot schemes. The findings come as the European Commission has published legislative proposals on a digital euro and as the European Central Bank enters the closing stages of its investigation stage on its design and distribution.
The European Commission has published legislative proposals on a digital euro.

Of the respondents to the BIS survey engaged in CBDC work all are working on a retail CBDC, intended for use by households and firms for everyday transactions, while three quarters are also working on a wholesale CBDC, meant for use for transactions between banks, central banks and other financial institutions - serving a similar role as reserves or settlement balances held at central banks.

In general, progress on retail CBDCs is more advanced than wholesale CBDCs. The findings show the main reasons for considering the issuance of a retail CDBC are payments efficiency, payments safety and financial inclusion. For wholesale CBDCs cross border payments efficiency is the standout reason. 86 central banks, representing 94 per cent of global economic output and 82 per cent of the world’s population, took part in the survey.

At EU level there has been a major step made towards a digital euro with the European Commission recently releasing legislative proposals in the area. The ECB warmly welcomed the proposals as they would ‘establish a framework facilitating the introduction of a digital euro that is widely usable and available throughout the euro area’ while the proposals also protect the legal tender status of euro cash. The proposals also support a high degree of privacy and data protection for users, while minimising money laundering and terrorist financing risks.

They also enable offline digital euro payments, to provide cash-like privacy levels.

In its latest progress report on its proposed retail CBDC, the digital euro, the ECB outlined its key characteristics and features with Payment Services Providers, as defined in the Payment Services Directive (PSD2), to be central to the onboarding/KYC and distribution of the digital euro. It also presented the findings of a study that evaluated people’s views on specific features of a potential digital wallet to ensure a digital euro can meet users expectations. An essential feature of such a wallet is person-to-person money transfers according to the study. Another desired feature is offline payments, a feature not widely available when using digital currencies but, as mentioned above, the EU Commission wants to legislate for. Budget management tools and conditional payments (such as payment on delivery and pay-per-use) are other desirable features.

The ECB is scheduled to complete its investigation phase on the digital euro’s design and distribution in the Autumn at which point, given the enthusiasm shown by both ECB and Commission members for the project, it will almost certainly begin the preparation phase that will involve the development and testing of a digital euro.