What is and what is not central bank digital currency?
It’s a quiet Fintech news day so I thought I’d address some questions that come up frequently on my tabulation of jurisdictions where central banks and other monetary authorities are exploring retail central bank digital currency (CBDC) issuance. First I stick with the definition of retail CBDC that we used in our recent working paper:
A retail CBDC is a widely accessible digital representation of a sovereign currency that is issued by, and a liability of, a jurisdiction’s central bank or monetary authority, and be legal tender.
Hence I tabulate only jurisdictions where it is the central bank doing the exploration. I don’t include jurisdictions where the government is gum flapping about it. Also, I tabulate “jurisdictions” as opposed to countries, to account for regional monetary authorities. So, for example, I include the Euro Area rather than list all of the Euro Area central banks that might be exploring retail CBDC issuance.
Also, I don’t include wholesale CBDC (W-CBDC), which is limited to a set of predefined user groups, typically banks and members of national payment systems, whereas a retail CBDC is widely accessible to the public. See the WEF Bank Digital Currency Toolkit for a broader analysis of CBDC that includes W-CBDC. The BIS has also published a paper with an extensive discussion of W-CBDC.
Two other popular questions concern the Marshall Islands SOV and Cambodia’s Project Bakong, neither of which are CBDCs. The SOV fails my CBDC litmus test because it is not issued by a central bank, as the Marshall Islands doesn’t have a central bank (it uses the U.S. dollar as its legal tender). The SOV will essentially be an initial coin offering that is issued by the national government.
Cambodia’s Project Bakong has been touted by the WEF as a “quasi” CBDC, but it is actually a blockchain-based interbank retail payment system that is run by the central bank. It does not run on digital tokens issued by, or on the balance sheet of, the central bank. According to the white paper, participating banks have Bakong settlement accounts at the central bank in which they hold user funds, so it is arguably a synthetic CBDC, but that’s a whole other story.