Steady movers keep pace – OMFIF

Developments in central bank digital currencies have been steadily driven by more conservative central banks such as the European Central Bank, the Federal Reserve, the Bank of England and the Bank of Japan. These banks share an affinity for physical notes and coins while leaving the gradual improvement of digital payment methods and banking to established service providers like Visa and Mastercard.

Strong political motives for financial inclusion lead to greater organic demand for digital currencies in emerging markets than in developed countries. The need for emerging markets to foster financial inclusion means there is a stronger representation of the digital currency, while the marginal benefit of skipping traditional real-time gross settlement and other interbank payment systems is also much greater. However, consumer payment behavior is changing. The Covid-19 pandemic led to an increase in digital and contactless payments in all countries, and cash use was reduced by half or more. In the US, stimulus payments revealed a broken banking system with limited population coverage, which sparked a debate about a digital dollar alternative.

Japan resumed its CBDC research and evaluation plans and is looking for a contingency plan in case its aging population’s demand for a digital payment option changes. The ECB has moved at different speeds as euro area national central banks such as France and Lithuania are promoting the CBDC prototypes in wholesale and CBDC prototypes in retail.

Britain remains conservative. Industry perspectives will continue to be gathered on various aspects of CBDC design, with a strict focus on minimizing the risks to financial stability. However, the BoE is updating its RTGS systems to provide subscribers with more efficiency and functionality and likely to create benefits for the end user with more competitive options and lower costs.

While these regions are making slow and steady progress compared to other regions, it is noteworthy that they are still driving research. That speaks for CBDCs for a bright future all over the world.


The Federal Reserve has been slow to enter the central bank digital currency arena. As Fed chairman Jerome Powell noted on an International Monetary Fund panel on digital payments, the US view was that “getting it right is more important than being the first.”

However, as 2020 went on, pressure on the Fed to prosecute CBDC has increased. The slow distribution of stimulus checks in April 2020 and January 2021 led to criticism of the US payment system. Planned upgrades, including FedNow, aren’t slated to roll out until 2024. In the spring of 2020, an attempt was made to include a digital dollar in the Coronavirus Aid, Aid and Economic Security Act.

China’s leading CBDC position has raised geopolitical and security concerns. A 2020 article on foreign affairs suggested that China’s digital currency / electronic payment could undermine the dollar’s role as the dominant international reserve currency and weaken US political clout.

In response, the Fed published a number of articles on CBDC. Most importantly, she announced new initiatives to study the digitization of the dollar. It participates in a consortium of leading central banks of the Bank for International Settlements, which is investigating possibilities in digital currency.

It has also uncovered a wide variety of US-based programs. These include the Boston Fed and Massachusetts Institute of Technology working together on a hypothetical open source CBDC, and building and testing distributed ledger technology platforms at the Feds in Cleveland, Dallas and New York.

Fed officials have repeatedly stressed that they have not yet made a decision to adopt a CBDC, preferring to focus their work on the potential legal, financial and political implications of the digital currency.


Motivated by the advent of private sector digital currency alternatives such as Facebook’s Diem and China’s efforts, the Bank of Japan began experimenting and testing the issuance of a CBDC. In addition to being part of the Stella project, the BoJ was also a member of the BIS group of central banks investigating CBDC.

Although the BoJ has not made any concrete plans for the timing of the issue, they have published their approach to ensure the stability and efficiency of the payment system. In October 2020, the bank published the expected functions and roles for a retail CBDC and the three proof-of-concept phases to test the technical feasibility of a phase. This is in line with Prime Minister Yoshihide Suga’s focus on promoting digitization and reforms to increase competitiveness.

The first set of experiments is scheduled to begin in April 2021 and test basic functions such as issuance, distribution, and redemption. Phase two examines the potential design of a CBDC and how much to spend. The final step involves a pilot program involving private companies and end users.


The Bank of England began discussing the issue of a CBDC in 2014. However, these were suspended in 2018 due to financial stability concerns. Nonetheless, then-Governor Mark Carney said he was open to the prospect of a CBDC, stressing that a digital currency introduction would not come soon.

The BoE took further measures in the course of 2020. In March she published a paper in which the opportunities, challenges and design possibilities of CBDC were examined. The paper stressed that the bank has not made a decision on whether to introduce a digital currency and intends to deliberate on the benefits, risks and practicalities of this currency.

Following the tone of 2018, the BoE’s goal is to maintain monetary and financial stability. The BoE joined the BIS initiative on concerns about digital currencies. Together they wrote a paper on achieving central bank policy goals, a framework for providing money and supporting payment systems.

Governor Andrew Bailey said that there are investigations into the issuance of a CBDC, but they would only be possible after Covid-19 was under control.


At the Sintra Forum in November 2020, the President of the European Central Bank, Christine Lagarde, announced that a digital euro could be available by 2025. While the ECB won’t decide to go ahead until mid-2021, Lagarde suggested it felt likely, although it would need to address a number of concerns related to money laundering, customer knowledge and other issues.

The ECB, in partnership with the Bank of Japan known as Project Stella, has first explored distributed ledger technology and digital currency. In four phases, the project looked at the delivery of securities versus payment, the processing of high value payments, cross-border payments, and the balance between confidentiality and verifiability in a DLT system. According to the ECB, the focus of these efforts was on security and data protection.

Much like other central banks, the ECB is being driven by the increasing digitalization of the economy, the proliferation of cashless payments and the possibility that private digital currencies undermine monetary sovereignty.

As a result, the ECB stepped up its work on a digital euro in October 2020. The ECB will discuss the introduction of a CBDC with a variety of stakeholders, including citizens, academics, the financial sector and public authorities. A high-level task force made up of Eurosystem experts will lead the work on CBDC.

Progress has been led by national banking initiatives, most notably the Banque de France. On December 17, 2020, she successfully carried out a CBDC experiment as part of a program that started in March 2020. The experiment carried out subscriptions and redemptions of fund shares on a private blockchain platform using the digital euro and enabled the simultaneous delivery of fund shares against payment.

Pierre Ortlieb and Levine Thio are economists at OMFIF. This is an excerpt from the February edition of the DMI journal.

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