CBDC Weekly: BIS Says 90% Central Banks Exploring Digital Currency; Call to Slow Down Digital Rupee; Philippines Plans Q4 Pilot of Wholesale CBDC

Nine out of 10 central banks surveyed by the Bank for International Settlements (BIS) said that they are at least exploring a central bank digital currency (CBDC), and half are actively developing a digital version of their fiat money.

Those banks represent 90% of the world’s economy, the BIS said. And it comes on the heels of a broader survey by accounting giant PwC that found 80% of all central banks are at least considering a CBDC.

See also: 90% of Central Banks Working on CBDCs, BIS Reports

“Work on retail CBDCs, in particular, has moved into more advanced stages,” the BIS said, adding that 26% are at either the actively developing or actually piloting stage. “With two thirds of central banks considering issuance of a retail CBDC in the foreseeable future [six years], the Bahamas, China, the Eastern Caribbean and Nigeria may soon be joined by other jurisdictions issuing or piloting a live retail CBDC.”

The top reasons are making domestic payments more efficient and ensure financial stability, with emerging markets and developing economies adding in financial inclusion.

It also found that while stablecoins “accelerated global work on CBDCs,” they are still niche financial products. However, 80% of advanced economies say the potential exists from them to be widely used for payments.

Is India Speeding?

Few countries, and certainly none of its size, are rushing towards a CBDC faster than India is moving towards a digital rupee.

Now an economic think tank led by a part-time member of the Prime Minister’s Economic Advisory Council is advising a slower pace, according to India’s Business Standard.

A paper co-authored by Poonam Gupta, director general of National Council of Applied Economic Research (NCAER) argues that more caution is needed. India’s finance minister, Nirmala Sitharaman has said that a digital rupee could be launched as soon as 2023.

“We argue that many of these arguments for CBDCs have been advanced uncritically,” the paper said. “Their proponents fail to acknowledge that some of these goals can be advanced at lower cost and at less risk through alternative means.”

Notably, it pointed to India’s Unified Payments Interface, which already widely used, saying UPI has “hosted some 70 billion transactions, some as small as one rupee, making it the world’s largest real-time payment system by transactions.”

As for the argument that a CBDC will foster financial inclusion, Gupta’s paper suggested encouraging more rural bank branches and well as providing banking services through “providing services through non-bank partners and agents,” the Business Standard reported.

The argument that a digital rupee is needed to keep privately issued stablecoins from getting too much control of the payments system could be addressed with stronger regulation.

It suggested a three- to four-year time frame, with nothing more than an analysis and public consultation by next year.

China Slowing down

China is pushing ahead its far-advanced CBDC, the digital yuan renminbi or e-CNY, with a test that is seeing it used by the Zhejiang Provincial Taxation Bureau for payment of taxes and social security premiums, among other things.

While China is far ahead of any major economy, it has slowed down its own launch, which had been expected as early as the February Olympics in Beijing. Instead it got little more than a test.

See more: China Experiments With CBDC Tax Payments

Beyond that, some of the countries’ state-owned banking giants have been exploring using the CBDC for various tax payments.

Around the World

The Bank of Uganda’s study of whether to launch a CBDC, begun in April, is looking at “whether or not a central bank digital currency should be considered … and especially explor[ing] what policy objectives it would address,” the central bank’s director for national payments, Andrew Kawere, told Reuters on May 6. “Is it financial inclusion that we want to solve, is it payments, is it to support innovations in the financial space? That is an unanswered question.”

One concern is that low penetration of smartphones and internet access could make a CBDC a tool of exclusion rather than inclusion, he said. The Central African Republic did not let its far worse access issues stop it from making Bitcoin a legal tender last month. Nor did it bother to let its own central bank know of the decision, Bloomberg reported on April 29

The Philippines plans to launch its wholesale CBDC in the fourth quarter of 2022, the governor of the Bangko Sentral ng Pilipinas (BSP), Benjamin Diokno, told local media, Ledger Insights reported.

The central bank has several large banks lined up as partners and is looking for more, the report added. It is also working with the Bank for International Settlements on Project Dunbar, a cross-border wholesale CBDC project who’s other participants include the central banks of Singapore, Australia, South Africa and Malaysia.