The Irresistible Rise of CBDCs

Central banks around the world are currently intensely scoping the design and implications of Central Bank Digital Currencies (CBDCs). After an initial negative reaction to DLT and cryptoassets, central banks have since taken a more proactive approach, with many of them exploring the options for the creation of CDBCs. This shift in attitude is summarised by the Bank of International Settlements (BIS), informally known as the “central bank of central banks”, who observed in their Annual Economic Report 2021 that:

“Central bank digital currencies (CBDCs) offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity. They are an advanced representation of money for the digital economy.”

In this article, we look at some of the key trends and opinions in the CBCDs debate.

A Shift in Central Bank Thinking

As of 2019, central banks issuing currencies to a fifth of the world’s population were likely to issue CBDCs soon, with up to 80% around the world engaged in research, experimentation or development (Boar et al, 2020). This shift has been accompanied by a shift in tone towards CBDCs. While in 2017 and 2018, many central banker’s speeches had a negative tone, since late 2018, references to CBDCs in speeches have become predominantly positive (Auer et al, 2020).

Figure 1: Cash Use Declines, Digital Payments Rise, and CBDC Projects Expand

Source: BIS Annual Economic Report 2021

The main drivers of this shift in attitude have been:

  • the trend in declining use of cash in many advanced economies, accelerated further by the concern that cash could transmit viruses during the COVID-19 pandemic (see Figure 1);
  • the digitalisation of commerce with a spike during the pandemic (see Figure 1);
  • the challenge to “public” money coming from privately issued cryptocurrencies, like Bitcoin, and more recently the announcement of global stablecoin projects as Facebook’s Diem;
  • the interest in digital currency as a technical means to inject quickly into the economy monetary or fiscal stimulus, when needed.1

A Map of CBDCs

A recent working paper published by the BIS provides a survey of the progress central banks around the world have made with CBDC projects, along with an updated detailed dataset (Auer et al, 2020).2

Figure 2: CBDCs Projects Around the World


Source: Auer et al 2020
Note:  Chart as of October 2021. BS = The Bahamas; ECCB = Eastern Caribbean Central Bank; HK = Hong Kong SAR; JM = Jamaica; SG = Singapore

The initial wave of adoption of digital currencies garnered little success and seemed to run into sands. For example, in 2014, the Central Bank of Ecuador launched a the “Dinero electrónico”, a digital currency project which failed to attract a significant number of users, and was subsequently discontinued in 2016 (White, 2018). However, by looking at Figure 1, it is clear that since then CBDCs projects have gained a new strong impulse. As of October 2021: 

  • two retail CBDCs are live, in the Bahamas and the Eastern Caribbean Central Bank;
  • there are CBDC pilots in 26 further jurisdictions; and
  • 65 central banks have publicly discussed their CDBC projects.

These numbers show the potential for rapid CBDC adoption across the globe, both in emerging markets and advanced economies.

Approaches to CBDC design vary across a range different dimensions. Figure 3 summarises some of them: 

  • Infrastructure – whether the CBDC is thought to be based on distributed ledger technology (DLT) or on more conventional centralised technological infrastructure.
  • Access – whether the access is supposed to be based on account identification or on token-based fully anonymous access.
  • Interlinkages – whether the focus is domestic or international payments infrastructure.
  • Architecture – whether the CDBCs is directly managed by the central bank or an intermediary.

Figure 3: Number of Retail CBDC Projects and Design Options

Source:  Auer et al 2020
Note: Chart as of October 2021.

Let us focus on two of these dimensions – first, the CBDC architecture and second, the international or domestic design.

CBDC Architectures

There are four distinct CBDC architectures possible:

  • Direct CBDCs where the payment system is directly operated by the central bank, which offers retail banking services via the central bank equivalent to commercial bank accounts. This implies that consumers holding the CBDC have direct claim on the central bank balance sheet. In such a model, the central bank themselves maintains the ledger of all financial transactions using the CBDC and executes digital payments.
  • Hybrid CBDCs where the digital currency is a direct claim on the central bank balance sheet, but the central bank interfaces with private intermediaries that execute retail payments. The central bank keeps the directly the ledger financial transaction and provides backup to the commercial bank payment infrastructure.
  • Intermediated CBDCs where the central bank maintains only a wholesale CBDC ledger, and not the detailed central ledger of all retail payment transactions. Again, the CBDC is a direct claim on the central bank's balance sheet and private intermediaries (commercial banks) execute payments.
  • Indirect or Synthetic CBDCs is the indirect provision of retail CBDC via financial intermediaries, that does not allow the consumer to directly access central bank money. Consumers only have claims on intermediaries that operate the retail payment system.

The International Dimension

The "interlinkages" dimension has also been explored by a second survey from the BIS, covering 50 central banks, which focuses on the international dimension of CBDC project design3,4. The survey has delivered a few broad conclusions.

First, the CDBC Proof-of-Concepts so far are largely focused on domestic payment infrastructure. While central banks a largely in favour of allowing non-residents within their own jurisdiction, for example, tourists to use their CBDCs, few of them are considering allowing the use of their digital currency abroad.

Second, central banks are intensely scrutinising potential risks emerging from the adoption of global stablecoins and CBDCs globally. They are particularly concerned about the risks surrounding currency substitution due to the adoption of foreign digital currencies (a new version of the dollarization phenomenon, where countries adopt the US Dollar as their national currency), as well as tax avoidance and loss of control over financial flows.

Third, central banks are assessing which tools can be deployed to minimise these risks, such as exchange restrictions to limit the use of a foreign CBDC, stablecoin and cryptocurrencies in their own jurisdiction.

Finally, central banks are considering multi-CBDC (“mCBDC”) arrangements which would establish interoperability between national CBDCs. There are broadly three models for achieving this:

  • enhanced compatibility;
  • interlinking CBDC systems; and
  • integration into a single system.

Rather than creating a new unit of account that competes with domestic currencies, or a unique across-borders currency, mCBDC arrangements aim to deliver national CBDCs with access frameworks, to facilitate efficient cross-currency payments. Multi-CBDC arrangements can avoid the problems related to sharing digital IDs across borders and the associated privacy risks. Crucially, they require a large amount of international cooperation.


Central banks are proceeding at speed towards the implementation of some form of digital currencies. This trend is part of the broader move of digitalisation in both advanced and emerging economies.

The specific features of individual projects vary substantially. Yet, to increase welfare and to provide economic benefits, CBDCs need to be designed with the public interest at their core and respecting the privacy and anonymity of users.

Central bank digital currencies need to realize the promise of reducing the cost of digital payments, that at present remain high, increase efficiency in payment systems nationally and across borders, and expand access to digital payment services, while preserving safety in the handling and processing of personal data.

As observed in the BIS Annual Economic Report 2021:

"The ultimate benefits of adopting a new payment technology will depend on the competitive structure of the underlying payment system and data governance arrangements. The same technology that can encourage a virtuous circle of greater access, lower costs and better services might equally induce a vicious circle of data silos, market power and anti-competitive practices. CBDCs and open platforms are the most conducive to a virtuous circle."


1 Bank of International Settlements, “Annual Economic Report 2021”.

2 In the US, early drafts of Congress bills on fiscal stimulus included references to a “digital dollar” as potentially a way to provide fast stimulus to the economy by executing government-to-person transfers (Brett, 2020).

3 Auer, R, G Cornelli and J Frost (2020), "Rise of the central bank digital currencies: drivers, approaches and technologies", BIS working paper, No 880, August 2020. The dataset is available at

4  Raphael Auer, Codruta Boar, Giulio Cornelli, Jon Frost, Henry Holden and Andreas Wehrli, “CBDCs beyond borders: results from a survey of central banks”, June 2021


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