2023-Public-Sector-Perspectives

What drives policy choices? CBDC policy views are driven by a complex mix of each country’s political, economic and social circumstances. For some countries, cross-border trade and foreign exchange issues – including reserve currency status or dependencies – are primary policy considerations. In other developed jurisdictions, notably the United States, high banking penetration and payments innovation, as well as limited stablecoin and cryptocurrency impacts on monetary and financial stability to date, have reduced the urgency for authorities to act. Moreover, structural complexity, public concern and political considerations have prompted caution and an emphasis on further analysis. Despite these myriad influences, the decisions by central banks about whether/what type of CBDC to pursue, appear to be largely determined by several factors. These include whether the central banks are focused primarily on the efficiency benefits of CBDCs, or on managing the potential risks to stability associated with the growing use of cryptocurrencies. • Retail CBDCs are often the starting point for countries with financial inclusion policy goals and where the use of cryptocurrencies or fiat-backed stablecoins is spreading rapidly. Retail CBDCs could provide 24/7/365 access to central bank money. Furthermore, retail CBDCs are seen as having potential systemic implications for the implementation of monetary policy. Retail CBDCs pose technical design challenges relating to secure custody and wallets, and may be complex for consumers to manage. In addition, they require a robust digital identity infrastructure prior to their introduction. Retail CBDCs can create a tension between transparency (which may be necessary to counter illicit finance) and individual privacy considerations, which can affect adoption rates. • Wholesale CBDCs are issued for use by and between banks in different settlement use cases. They aim to enhance in-country payments efficiency and reduce settlement risk. If the technical design of a wholesale CBDC facilitates programmability, the structure could eventually be used for transacting in other digital assets, such as securities, in addition to payments. To be effective, wholesale CBDCs need to involve a wide range of actors working in public-private partnerships to ensure strong adoption and maximize connectivity to existing structures. • Multi-CBDCs (mCBDCs) Eventually, interlinking CBDCs across nations into mCBDCs may facilitate instant cross-border trade and payments. 5 Stakeholders’ goals and roles Citizens: Low costs; security; privacy; ability to hold value; ease of use; broad acceptance; accessibility (including the potential to reach the unbanked). Businesses: In addition to the above: ability to pay employees, suppliers and tax authorities; access finance; lower costs and risks (especially in countries where cash remains prevalent); create innovative propositions for customers. Challenges vary by business size. Small companies (typically one owner with authority to act for the business) may find it easier to adopt CBDCs. Large multinationals (which tend to have functionalized processes, multiple users, and segregation of duties to manage risk) face challenges where access involves smart devices/a single user control. Banks: Opportunity to hold customer deposits; measure and assess risks; distribute finance and facilitate transaction flows; ensure interoperability with other forms of payment and a cohesive customer experience. Public Sector: Reach the unbanked for payments and support; receive tax flows (and potentially broaden the tax base/reduce evasion); manage flows between government departments; drive adoption and uptake by the broader population; stimulate economic and trade growth, for example by bringing micro businesses into the broader non-cash economy or by enabling interactions between small businesses and larger businesses that were unwilling to transact in cash. Citi Perspectives for the Public Sector 51