A Review of recent research findings on CBDCs
In this paper, Chapman et al. provide a review of the literature on CBDCs focusing on three main areas where CBDCs could influence traditional banking: payments, lending, and liquidity and maturity transformation. More specifically:
- In the area of payments, research reviewed suggests that the demand for a CBDC could be significant, but estimates vary widely depending on the CBDC’s design characteristics. For example, Li (2022) estimates demand for a CBDC could be between 4% and 52%, which is quite a large range.
- Regarding lending, the paper explores how the design of a CBDC could change banks’ funding costs. An interest-bearing CBDC could act as a substitute for bank deposits, potentially raising banks’ funding costs and affecting their ability to lend. The literature shows mixed effects, with some studies suggesting that a CBDC could increase lending in an oligopolistic banking sector, while others indicate it could reduce credit creation.
- The third area of focus is on how a CBDC could affect banks’ role in liquidity and maturity transformation. Chapman et al. discuss concerns that a CBDC could make banks more fragile by increasing the likelihood and speed of bank runs. However, the authors also highlight literature that has identified some considerations that can offset these risks. One is that a CBDC could cushion the disruption to the payment system in case of a bank failure by providing an alternative means for digital deposits. Also, withdrawals of a CBDC are easier to observe (relative to cash) and can transmit timely information to help policy-makers and banks manage runs. In addition, recent work shows how a CBDC could also induce banks to redesign their deposit contracts to be more run-proof.
The authors conclude by identifying two promising areas for future research: the effects of a CBDC on market structure studied through the lens of industrial organization, and the new developments in the crypto space and how they relate to CBDC design and issuance.
Central Bank Digital Currencies and Banking: Literature Review and New Questions
Authors: James Chapman, Jonathan Chiu, Mohammad Davoodalhosseini, Janet Jiang, Francisco Rivadeneyra, Yu Zhu
From: Bank of Canada
Tracking CBDC projects worldwide
Updated in March 2024, the Atlantic Council’s CBDC Tracker provides an overview of the status of CBDC projects worldwide. Some key findings:
- 19 of the Group of 20 (G20) countries are now in the advanced stages of CBDC development. Of those, eleven countries are already in the pilot stage. This includes Brazil, Japan, India, Australia, South Korea, South Africa, Russia, and Turkey.
- There is a new high of 36 ongoing CBDC pilots, including the digital euro. The European Central Bank (ECB) is now in the preparation phase, conducting practical tests with some transactions being settled in a controlled environment. The digital euro is in a 2-year preparation stage, ending in 2025.
- Progress on retail CBDC has stalled in the US. There is a widening gap between the US and G7 banks, including the Bank of England and the Bank of Japan. CBDC has become an issue in the ongoing US presidential campaign, with several candidates speaking out against its development.
- In every country with an advanced retail CBDC project, CBDCs are intermediated, meaning they are distributed through banks, financial institutions, and payment service providers. In China, there is also an option for a direct CBDC—which can be accessed through a central bank application.
- Since Russia’s invasion of Ukraine and the resulting G7 sanctions response, wholesale CBDC developments have doubled. There are currently 13 cross-border wholesale CBDC projects, including mBridge, which connects China, Thailand, the UAE, and Hong Kong, and will enter a new phase, expanding to 11 more countries this year.
Central Bank Digital Currency Tracker
By: Atlantic Council
