Declining Interest in CBDCs Among Central Bankers
Despite an increase in research activities, central bankers are showing diminishing enthusiasm for central bank digital currencies (CBDCs). Once regarded as a potential game-changer for improving cross-border payment systems, the appeal of CBDCs has significantly waned, as highlighted by the latest Future of Payments survey conducted by the Official Monetary and Financial Institutions Forum (OMFIF).
The annual report revealed a stark decrease in support for CBDCs, with only 13% of respondents in 2024 advocating for them as a viable solution. This marks a significant drop from 31% in the previous year, showcasing a trend of decreasing confidence in these digital currencies.
Preference for Instant Payment Systems
In place of CBDCs, a notable 47% of surveyed central bankers expressed a preference for interlinking existing instant payment systems, such as the U.S. FedNow service. This shift underscores a growing inclination towards enhancing the current payment infrastructure rather than pursuing new digital currency solutions. Conversely, stablecoins have garnered no support in the past two years, indicating skepticism among central bankers regarding their effectiveness to improve the global financial framework.
Global Trends and Geopolitical Influences
The decline in interest towards CBDCs coincides with the Bank for International Settlements (BIS) stepping away from Project mBridge—a collaborative initiative involving multiple CBDCs led by China and other nations that hold differing geopolitical perspectives from the West. Although the BIS has indicated that its withdrawal was not politically motivated, the action highlights the complexities and geopolitical tensions that surround the global adoption of CBDCs.
Additionally, the survey referenced the U.S. dollar’s persistent strength, noting that only 11% of central banks reported a decrease in dollar usage. Geopolitical uncertainties have continued to bolster the dollar’s status as a safe-haven asset, further complicating the landscape for alternative digital currencies.
Challenges in the Correspondent Banking System
The conventional correspondent banking system, historically essential for international settlements, faces rising criticisms for being outdated and expensive. Onerous Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations have made these traditional systems cumbersome. The delayed adoption of the ISO 20022 messaging standard is anticipated to aggravate the system’s challenges, prompting central banks to investigate alternatives such as tokenization.
Over 40% of central banks in developed markets view tokenization as a promising avenue of innovation, with many planning to initiate projects within the next three to five years. By simplifying compliance checks, tokenized solutions have the potential to revolutionize cross-border payment processes, offering a more efficient alternative to the existing framework.
The Status of Traditional Payment Systems
In light of these developments, traditional instant payment systems remain the leading choice for central bankers. The BIS’s Project Nexus is working toward a unified global platform based on the ISO 20022 standard to connect instant payment systems effectively. Meanwhile, initiatives like Agora are investigating wholesale CBDCs that incorporate tokenized solutions.
Nevertheless, the OMFIF survey indicates that the immediate future of cross-border payments will likely continue to rely on established financial systems, rather than moving toward blockchain-based innovations.
India’s Cautious Approach to CBDCs
Recently, India’s central bank, the Reserve Bank of India (RBI), announced a cautious approach to its CBDC rollout—specifically the e-rupee. While the RBI recognizes the transformative potential of CBDCs for the financial landscape, Deputy Governor T. Rabi Sankar emphasized the necessity of fully understanding the technology’s implications before increasing its adoption.
Globally, over 130 countries, accounting for nearly 98% of the world’s GDP, are actively exploring the implementation of digital currencies, as reported by the Atlantic Council. Countries like China, Jamaica, and Nigeria are already progressing with their CBDC projects, while India remains vigilant of international advancements as it continues to develop its digital currency initiatives.