Evaluating the impact of a central bank digital currency

Central banks across the world are rethinking approaches to financial and payments system infrastructure. New technologies such as distributed ledgers are revolutionising the way customers, businesses and financial intermediaries interact.

Central Bank Digital Currencies (CBDCs) can provide consumers with a next-generation payment instrument and the economy with next-generation payments infrastructure. Retail CBDCs that provide consumers with a payment solution, with features similar to cash and digital payments, are of increasing interest to central banks, with several countries having officially launched a retail CBDC. Another 53 countries are reportedly exploring the use of a CBDC .

The Centre of Digital Excellence (C0DE) and Financial Services Strategy (FSS) teams at Genesis partnered with a global blockchain infrastructure provider to conduct an assessment of the impact of a retail CBDC for an African central bank. The study provides an assessment of how a CBDC could help to achieve national policy objectives and influence the central bank’s ability to execute its mandate.

A comprehensive understanding of the costs and benefits of a CBDC is critical for the central bank to understand. This novel digital currency offers many opportunities but may also have unforeseen consequences if it disturbs the financial system and central bank’s ability to execute its mandate.

Our assessment of the economic, social and regulatory impact of a CBDC considered a number of themes:

• The CBDC architectures that would help the central bank achieve its mandate and deliver on national objectives;
• How the CBDC would impact the cash and digital payments ecosystems;
• How the CBDC might affect monetary policy and influence financial stability;
• The factors that will drive the adoption of a CBDC by consumers and whether consumers would benefit enough to warrant the disruption.

To understand the dynamics and potential impacts of these considerations we undertook an extensive literature review to model the theoretical opportunities and risks that a CBDC presents. We also evaluated global motivations for and proposed designs of a CDBC to understand why certain designs are pursued in some contexts and not in others. 

We also worked closely with our client through a series of workshops to explore the importance and impact of local conditions. These workshops were critical as global CBDC literature is incomplete which requires the development of bespoke analysis.

As a result of our support, the central bank was equipped with a comprehensive assessment of the opportunities and risks of a retail CBDC and the impact it may have on the central bank’s policy objectives. Along with results of technical experimentation, the bank will be able to make an informed decision regarding whether to pursue the development of a CBDC.