Central bank digital currencies

Conference—Global imbalances and capital flows in the era of new technologies

Bank of Spain and Reinventing Bretton Woods Committee

Madrid, 10-11 September 2019

Ladies and Gentlemen,

I'm most grateful to the organisers for the invitation to chair this panel session on central bank digital currencies or CBDC. Accenture is a leader for CBDC solutions. Central bank money has not seen much change since the proliferation of paper currencies during the nineteenth century. CBDC now promises to bring needed innovation to central bank money. At the same time, central banks have a historical opportunity to set new standards for digital currencies.

CBDC is a new format of central bank money to serve as medium of settlement on token-based financial market infrastructure and forms an integral part of the monetary base. The innovation with CBDC rests in its token format. Tokenisation offers a more versatile format for assets and new functionality and utility for money. Like all financial market infrastructures, token-based financial market infrastructure should offer settlement in central bank money. Distributed ledger technologies (DLT) or blockchain-enabled applications are best suited to support tokens and are set to be the dominant technology for CBDC. Preferred DLTs include permissioned networks to offer needed performance, scalability and privacy.

Recent key CBDC developments include: In July 2018, the announcement by Swiss Exchange to offer an entire token-based fully regulated financial market infrastructure; in October 2018, project Jasper in October 2019 with the Bank of Canada, Payments Canada and the Toronto Stock Exchange showed that DLT-enabled systems can perform securities settlement against CBDC and also in October 2018, the Depositary Trust and Clearing Company (DTCC) demonstrated that DLT-enabled system can support peak trading volumes in U.S. equities addressing prior performance and scalability concerns with DLT-enabled systems; in June 2019, the Central Bank of Sweden, Riksbank initiated a public tender for a retail CBDC; in August 2019, the People's Bank of China announced that it is 'almost' ready to introduce a CBDC but no launch date has been set.

Four critical CBDC themes seem to gain tractions

CBDC is set to change utility and relative attractiveness or success factors of central bank money. The success of central bank money, that is its promise of stability and utility, has evolved from residing almost exclusively on its intrinsic value as currency reserved by precious metals. With the adoption of generalised floating, the attractiveness of central bank money shifted to depend mostly on the credibility of the central bank.

Currency functionality amid a given central bank credibility may now become the new currency success factor. Because CBDC can do things conventional central bank money cannot, it may alter the relative attractiveness of currencies. It may also allow smaller currencies to play a greater role and lead to a reranking of currency use in national and international transactions.

The success factors of central bank money shifted from the properties of a currency to the institution issuing a currency and may now shift back again to the properties of a currency. CBDC endows central bank money with new functionality and utility. It is set to ensure central bank money can stay future proof.