Central bank digital currencies

Abstract

Advances in technology and digitalisation are widespread and affect all facets of life, including jobs, education and social interactions. Electronic devices and high-speed networks have become practically ubiquitous, leading to the rise of the modern, digital consumer, who is positively inclined towards mobile and online platforms and is increasingly the driving force of consumption. The need for speed, convenience, round-the-clock availability and an enhanced user experience has led to significant changes in the payments space. These include the emergence of non-bank payment service providers, private cryptocurrencies and real time gross settlement (RTGS) enhancements. These changes have prompted many central banks to study the possibility of a central bank digital currency (CBDC) as a payment token and the impact it could have on their economies. Electronic central bank-based currencies have been in place for decades. They are in the form of banknotes and serve as reserve balances that banks and participating financial institutions maintain with central banks. The latter are used for interbank settlements. CBDC is a potential new form of money, issued digitally by the central bank and intended to serve as legal tender. Given that these are government-issued legal tender, CBDCs will need to be backed by government debt. This paper aims to provide an understanding of the concept of CBDCs, the case for and against CBDCs and the CBDC experiments worldwide that explore central bank investigations around CBDC usage.