The race to digital money is on – PwC Global CBDC Index 2022 shows central banks are in the lead
PwC has revealed that more than 80% of the world’s central banks are considering launching a central bank digital currency (CBDC) or have already done so. Meanwhile, the mBridge project for cross-border payments initiated by the central banks of Hong Kong SAR and Thailand, has been ranked as the world’s most developed wholesale CBDC project.
The PwC Global CBDC Index 2022 analyses and ranks the leading retail and wholesale CBDC projects. The Index evaluates the current stage of CBDC project development also taking into account central bank opinion and public interest.
Overall, retail CBDC projects (digital currencies designed for public use) have reached greater maturity levels than wholesale projects (digital currencies used by financial institutions that have accounts with central banks), but the past year has seen progress on a number of successful wholesale pilots.
Retail projects in the Index are led by the Central Bank of Nigeria’s (CBN) eNaira, the first CBDC in Africa, and the Sand Dollar, issued by the Central Bank of the Bahamas as legal tender in October 2020, making the Bahamas the first country to launch a CBDC. China became the first major economy to pilot a CBDC in 2020 with the digital yuan, and as of March 2022 pilot programmes are running in 12 cities, including Beijing and Shanghai.
On the wholesale side, the leading project in the Index is the combined effort of the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT) to launch the Multiple Central Bank Digital Currency Bridge (mBridge) project, focused on developing a proof-of-concept prototype to enable real-time, cross-border foreign exchange payments on distributed ledger technology. Also ranked highly is the work of the Monetary Authority of Singapore (MAS), with two new CBDC projects, as it continues the development of a wholesale CBDC for cross-currency payments.
The PwC report also provides an overview of stablecoins, digital currencies collateralised by, for example, a fiat currency, which can allow a bridge to be created between the traditional financial ecosystem and digital technologies.
Haydn Jones, Blockchain and Crypto Specialist, PwC UK said: “This year’s Index shows that central banks are ramping up activity in the digital currency space. Countries are at differing levels of maturity with CBDCs and each country has different motivating factors. Increasing financial inclusion, facilitating cross border payments and controlling financial crime are all factors that come into play. We expect CBDC research, testing and implementation will intensify in 2022. The success of Nigeria’s eNaira is likely to spur CBDC development in countries where financial inclusion is one of the key desired outcomes.”
John Garvey, Global Financial Services Leader, PwC United States said: “It is especially important for financial institutions to understand where central banks are with digital currencies, because ultimately CBDCs will start flowing through the payment system and start to hit bank balance sheets. Careful consultation with central banks is critical in clarifying the business case for CBDCs, from an inclusivity, financial performance and interoperability perspective. One thing that is clear, lowering the cost of payments in an economy provides value throughout the economy and for citizens. If CBDCs can ultimately enable more efficient payments, that will benefit everyone.”
Vilaiporn Taweelappontong, Consulting Lead Partner and Financial Services Leader, PwC Thailand added: “What needs to be looked at after CBDC is available in Thailand, is how much the financial landscape transforms into digital. At the same time, commercial banks and business owners need to closely monitor the progress of CBDC as there will definitely be impacts on accounting and business issues.”
The PwC report states that the mBridge project is entering the pilot phase this year and will explore the existing limitations of the current platform such as privacy, liquidity, scalability and DLT performance. The project will also look into policy requirements and trial a CBDC with commercial banks and other market participants.
As for retail CBDC, the report reveals that Thailand ranks eighth on the Index (behind seventh placed Uruguay, but ahead of Sweden). The BoT wants to develop retail CBDC to ensure people have access to digital money for convenient and faster monetary transactions.
“Thailand’s central bank is currently studying which retail CBDC models are suitable. A one-tier model allows the central bank to issue, regulate, and manage CBDC, while in a two-tier model, the central bank assigns intermediaries such as commercial banks to issue CBDC under its regulations.
“If retail CBDC is successful, it will serve as a promising financial infrastructure for banks, enabling the business sector to continue developing new products or financial services that are beneficial to the people,” Vilaiporn said.
