Central banks should launch CBDCs to ensure economic stability — report

Central banks should continue to develop sovereign digital currencies for the sake of economic stability, according to a new report, “CBDCs: It’s time for action — Why central banks should take the next step”. 

The report, by the Official Monetary and Financial Institutions Forum (OMFIF) and currency technology provider Giesecke+Devrient (G+D), warned against “disruptive forces” arising from private companies and currency alternatives in the payments ecosystem. 

The development of central bank digital currencies (CBDCs) was crucial, it said, or the public sector risked ceding control over payments to private actors. This could lead to “monetary system fragmentation, reduced stability and risks to users, including higher fees, financial exclusion and misuse of personal data, as private entities prioritise profit over the public interest”. 

Central banks have discussed CBDCs for several years but “few have taken the plunge and actually launched one”, said the report, which also argued that CBDCs offer greater privacy than digital cash alternatives.

Research for the report was based on data from the OMFIF 2023-24 survey of central banks, comprising responses from 73 central banks with $5.4 trillion in international reserve assets.

The Bahamas was one of the first countries to launch a CBDC backed by a central bank, dubbed the Sand Dollar, during the pandemic. Both India and Jamaica also launched digital versions of their currencies in 2022.

Getting it right

The OMFIF/G+D report found that while three-quarters of central banks expected to issue a CBDC, only 34% expected it to happen within three to five years. However, 91% have done, or will conduct, feasibility studies. Around a third have delayed issuance because of “economic situations and political will”. 

Norway, Sweden, Canada and Australia have all announced a pause in CBDC development, while the US, under the current administration, has issued an outright ban on any development.

Wolfram Seidemann, chief executive officer at G+D Currency Technology, said central banks should look at the OMFIF data as an incentive to push ahead with their programmes. “I think central banks want to do things right. They don’t need to be the fastest,” he added.

Controversial new paradigm

Seidemann described developments around CBDCs as a “new paradigm” that was disrupting existing roles and responsibilities and leading to “a lot of controversial discussions”.  

Many discussions around CBDCs focus on both the interbank wholesale market and retail offerings. While wholesale CBDCs tend to be discussed within industry working groups and central bank projects with little fanfare, the retail version of digital cash drives political debate in some circles.

Opponents of a retail CBDC — which has only really been issued in emerging markets as a financial inclusion strategy — claim that a digital version of a sovereign currency brings up privacy concerns and puts the public at the mercy of government overreach.  

More privacy

However, Seidemann said a retail CBDC could offer more privacy than digital cash alternatives from the private sector because “citizens’ right to privacy is guaranteed as central banks are not commercial players and therefore have no interest in customer data, unlike private-sector providers”. He says the commercial sector is “interested in collecting and using data for business purposes”.

He adds that the only reason central banks would be interested in transactional data is to comply with regulations related to money laundering and terrorist financing.

The OMFIF/G+D report argued that CBDCs offer “a critical counterbalance to the proliferation of private digital money. By providing a secure, inclusive and interoperable digital payments solution that also aligns with regulatory frameworks, CBDCs can seamlessly integrate into the digital economy”, it said.

Digital pound

At the start of 2025, the Bank of England (BoE) announced that there had been “no decision” on whether to proceed with a digital pound.

In a statement, it said: “After completing the design phase over the next couple of years, including taking account of developments in the wider payments landscape, the Bank and government will assess the policy case for a digital pound and determine whether or not to proceed.” 

However, in a transcript of the Q&A session following a speech earlier this month at the University of Chicago Booth School of Business in London, Bank governor Andrew Bailey,  said: “We’re looking at [CBDCs in the UK]. I think the question is how do we get the benefits of digital technology in the world of payments? To assume there are no benefits of digital technology in the world of payments would probably be failing the test of imagination.” 

Some benefits included combating fraud and the proliferation of late payments, especially for small businesses. “The question of how you provide those benefits should come second. We have to ask the question: why do we need to introduce central bank digital currency to achieve those benefits?” Bailey added.

Financial inclusion

According to Keith Bear, a fellow at the Cambridge Centre for Alternative Finance (CCAF), the financial inclusion aspect of CBDCs was a strong motivator for emerging economies. While he echoed Bailey’s comments that more advanced payment mechanisms were needed, he said how best to deliver them was a more important question.

Bear pointed to advancements in open banking and the ongoing work in the UK with the Regulated Liability Network (RLN), which aims to be a financial market infrastructure (FMI) operating a shared ledger with central bank money, commercial bank money, and electronic money on the same network. 

Some of the RLN’s core features would mean that it is ‘always on’, ‘programmable’ and can support ‘multi-asset’ settlement, thanks to the adoption of distributed ledger technology (DLT).

An evolving digital economy “needs some kind of programmability, which may or may not be implemented within a token, so may or may not be central bank money or commercial bank money, and these are the ways that could be delivered”, Bear added.

Existing structure 

According to Seidemann at G+D Currency Technology, any development of a CBDC needed to be developed within the existing structure and role of central banks, which is to issue currency, and ensure integrity and the stability of the financial system.

Most central banks surveyed by the report sought to establish a CBDC within a structure similar to physical cash, with money distributed through commercial banks that comply with Know Your Customer (KYC) checks and other compliance rules, he added.

Because many CBDC projects eschew the need for blockchain or DLT, the history of the currency transactions is not stored on the network to verify new transactions, Seidemann said. “You have a central bank who is trusted. With that setup, you don’t collect the data which people are sensitive about. So clearly, I expect much higher privacy coming from CBDCs.”