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Central bank digital currency use set to soar over next seven years

The use of central bank-backed digital currencies is set to explode over the next seven years as governments drive adoption to increase financial inclusion

Payments made using central bank digital currencies (CBDCs) will grow from $100m this year to a massive $200bn in 2030. The startling numbers from Juniper research reveal a 260,000% increase over the next seven years.

Juniper said the CBDC sector is in its early stages of development with mainly pilot projects, but it expects government projects to boost financial inclusion will stimulate adoption. This will particularly be the case in emerging economies “where mobile penetration is significantly higher than banking penetration”.

A central bank-backed digital currencies is a digital coin issued by a central bank, linked to the country’s fiat currency. As such, it would always retain its value – unlike volatile cryptocurrencies – and would replicate the use of cash.

Juniper’s research found that 92% of total CBDC transactions in 2030 will be domestic payments, compared to 100% in current pilots.

“Since CBDCs are issued by central banks, they will be closely targeted to domestic payment challenges initially, with cross-border payments coming later, as systems become established and links are made between CBDCs used by individual countries,” said Juniper.

“While cross-border payments currently have high costs and slow transaction speeds, this area is not the focus of CBDC development. As CBDC adoption will be very country specific, it will be incumbent on cross-border payment networks to link schemes together, allowing the wider payments industry to benefit from CBDCs,” said Nick Maynard at Juniper, who wrote the report. 

But Juniper also identified a lack of commercial product development around CBDCs as a key limiting factor for the current market.

“The research recommends that prospective CBDC platform providers develop a full end-to-end solution, including wholesale capabilities, wallet provision and merchant acceptance, in order to enable the realisation of CBDCs’ potential,” said the report.

In the UK, HM Treasury has launched a consultation on its plans to launch a digital currency, which could lead to a government-backed digital pound. The digital pound consultation is to help inform the government – it does not mean a decision has been made to introduce a digital currency.

Bank of England governor Andrew Bailey said: “As the world around us and the way we pay for things becomes more digitised, the case for a digital pound in the future continues to grow. 

“A digital pound would provide a new way to pay, help businesses, maintain trust in money and better protect financial stability,” he added.

He said the consultation would help the government make “a profound decision for the country on the way we use money”.

In January, the Treasury posted its search for a head of central bank digital currency (CBDC) on LinkedIn, with the successful candidate expected to manage multiple teams, including financial services, financial stability, economics and spending teams.

According to the job listing, candidates would require experience of “working in financial services or public policymaking in a technical subject or highly regulated area”.

Read more about digital currencies

  • The UK financial services regulator is calling for feedback from organisations, including tech firms, on the use of cryptocurrency.
  • Sweden’s central bank, Riksbank, has extended a project to build an understanding of how a digital currency might work, including what technology might underpin it.
  • Nordic developments within the digital currency domain have produced a landmark cross-border technology hub collaboration between Scandinavia’s four central banks and the Bank for International Settlements (BIS).

Read more on IT for financial services

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