2023-Public-Sector-Perspectives

Conclusion CBDCs are an important development in the digital money landscape. They have the potential to become more important if cryptocurrencies and stablecoins experience strong headwinds. In both retail and wholesale forms, they offer potential benefits to various stakeholders, including citizens, businesses and government itself. These range from the curbing of illicit activity and greater financial inclusion, to improved payment efficiency, transparency and speed. Were CBDCs to be adopted widely and effectively given the various design challenges, they could transform the financial system. Progress has been swift and there have been many significant achievements. China’s pilot, which is set to expand in 2023, had 261 million users on the official eCNY app at the end of 2021, with Rm100 billion in aggregate transactions by September 2022. 12 Many central banks are partnering with banks, technology providers and other private sector innovators to help them think through the design challenges associated with CBDCs, and build and deliver the requisite technology infrastructure. Yet the challenges associated with creating CBDCs are formidable. CBDC projects must balance privacy, security and efficiency; must not hamper central banks’ ability to control the money supply and manage economic stimulus; and should not undermine the crucial role of regulated fractional-reserve banking – and the associated money-multiplier effect that is key to the provision of credit and economic growth. The scale of these challenges – combined with the complexity surrounding design choices such as token- versus account-based access – perhaps explains why only 12 countries, involving five CBDCs, are supporting live CBDC transactions, and some of these in pilot context. Moreover, the development of CBDCs is occurring at an especially innovative time in the history of money. Despite their recent troubles, cryptocurrencies and stablecoins still have many adherents. More importantly, traditional financial market infrastructures are innovating at pace, with scores of instant payment systems now operational. Given this proliferation of private and public digital assets initiatives, interoperability is critical. To create the hoped-for efficiencies rather than introduce new barriers, central banks and governments should prioritize: • open architecture, enabling interoperability between CBDCs and other digital payments, assets and transactions; • interoperability among different jurisdictions’ CBDCs; • building support for adoption by involving and engaging a wide range of experts and actors including banks, fintechs, technology firms and citizens. 12 https://www.wired.com/story/chinas-digital-yuan-ecny-works-just-like-cash-surveillance/ Citi Perspectives for the Public Sector 55