Central Banks and Digital Currencies

Interest in Central Bank Digital Currencies (CBDCs) has grown exponentially in the last few years in response to innovation in payments and technology, along with the disruption caused by COVID-19. This shift has also been triggered by cryptocurrencies' growing interest and influence as a medium of exchange and asset class. As a financial services innovation, CBDCs are likely to play a pivotal role in shaping the future of value transfer. Most central banks worldwide are now at various stages of evaluating needs and potential solutions for national digital currencies, while few have already launched their CBDCs.  

While the prospective advantages of CBDCs have prompted central banks to investigate their possible applications and design principles. However, it is also crucial to carefully consider the associated challenges and risks to ensure that CBDCs are designed and implemented for maximum benefit. The Federal Reserve Bank of New York (FRBNY) Markets Group has tasked the SIPA Capstone team to identify primary themes and discussion topics for various central banks and their approaches to maximize benefits and minimize risks of CBDC implementation. The team explored current development of CBDCs in selected central banks from developed and developing countries. It identified three major themes and assess potential benefits, risks and policy implications of implementing a CBDC. The final report included specific recommendations to implement and promote CBDCs in the public sphere.