Central Bank Digital Currency (CBDC) is a new form of money that exists only in digital form. Instead of printing money, a central bank issues widely accessible digital coins so that digital transactions and transfers become simple.

Efforts towards the CBDC are increasing all over the world for many reasons. The COVID-19 crisis induced a shift in payment habits towards digital, contactless payments and e-commerce due to a now refuted danger of banknotes being way of transmitting infection, which accelerated the decline of cash use. Secondly, cryptocurrencies developed by private organisations or informal communities (e.g., Bitcoin) have seen significant developments and value gain. As a response, 87 countries(representing over 90 percent of global GDP) are now exploring central bank digital currencies, while 9 of them have fully launched a state-owned digital currency.

The growing adoption of digital assets underpinned by blockchain technologies is accelerating the pace of innovation in the financial sector and capital markets. Blockchain technologies offer new paradigms when it comes to the decentralization of trust, and the case for Central Bank Digital Currencies (CBDC) lies in the promise of:

• Improved efficiency (reduced complexity, risks, settlement time)
• Distribution of ledgers as a different paradigm for the resilience of the system
• Openness driving competitiveness, hence lower costs and financial inclusion
• Better control and more prompt transmission of monetary policies, with built-in programmability

According to the Bank of International Settlement, more than 50 central banks, representing the bulk of global GDP, are exploring digital currencies: the Economist reports that “the EU wants a virtual euro by 2025, Britain has launched a task force, and America, the world’s financial hegemon, is building a hypothetical e-dollar.” The Asia Pacific region is also active, especially China, Japan, Singapore, Hong Kong and Thailand.

Through their technical experimentation, central banks are capturing insights to help design the next generation of market infrastructures around Wholesale / Retail CBDC and Securities Settlement.

The adoption of Central Bank Digital Currencies will depend on regulatory frameworks, but we think that the relevant question is not if, but when this will happen.

Given the current exposure of IBM in the capital market and ecosystems, it is likely that IBM will have the opportunity to support this transformation towards CBDC, embedding a combination of IBM Technology and IBM Consulting. Read more in our full paper on the Future of Digital Money.