Most of the world’s central banks are proceeding cautiously in developing digital currencies, with little likelihood of any of them issuing a sovereign currency for wholesale settlement in the next three years, according to a survey by the Bank of International Settlements (BIS).
More than half of the 63 central banks surveyed said cryptocurrencies accounted for “trivial” usage, or were not used at all for domestic payments, while 28 per cent said they were only used by niche groups domestically, according to the Basel, Switzerland-based BIS, dubbed the central banks’ central bank.
“No central banks reported any significant or wider public use of cryptocurrencies for either domestic or cross-border payments in their jurisdictions,” said Christian Barontini and Henry Holden, authors of the report, after the survey in late 2018 of banks that covered an estimated 80 per cent of the world’s population.
Wholesale digital currencies, which would be restricted in usage for specific tasks, such as interbank payments, are seen as the most likely usage for such currencies initially by central banks.
Two central banks from “emerging market economies” were considering issuing their own cryptocurrencies for the general public, the survey said, without identifying them.
The survey was released a day after the price of bitcoin jumped nearly 5 per cent to more than US$4,000, according to CoinDesk, a research website that tracks digital currencies.
The cryptocurrency, one of the most widely watched digital currencies, briefly topped US$17,000 in December 2017, but has fallen dramatically over the past year. Bitcoin fell back below US$4,000 on Tuesday morning, according to CoinDesk.
Most central banks who responded said they believed that the usage of cryptocurrencies would remain minor because of low acceptance by retailers, compliance issues, a better understanding by the general public of the risks involved and outright bans in some jurisdictions, according to BIS.
Explainer: What is an ICO and why is China’s central bank banning it?
About 70 per cent of the central banks surveyed said that they were engaged in some kind of work on their own digital currencies, hoping to replicate blockchain, or distributed ledger technology that underlies digital currencies, for use in wholesale payment systems, BIS said.
Only five central banks have advanced to running pilot projects, including the central banks of Sweden and Uruguay.
About a quarter of the central banks have the authority or will soon have the authority to issue their own digital currencies in the near term, BIS said.
Explainer: What is Hong Kong’s plan for licensing cryptocurrency exchanges?
The biggest potential motivations for central banks to issue digital currencies are for payment safety and payment efficiency, according to the survey.
“Most central banks are conducting research into [central bank digital currency (CBDC)]. Many are progressing from conceptual work into experimentation and proofs-of-concept, including in cooperation with other central banks,” the study’s authors said.
“Nonetheless, motivations for issuing a CBDC are largely idiosyncratic: for example, falling availability of cash in a jurisdiction,” the bank said. “This has meant that only a limited number of central banks are proceeding to the pilot stage with CBDCs, and even fewer see issuance of a CBDC as likely in the short or medium term.”