Challenges related to new monetary infrastructures and opportunities for businesses
central banks have studied digital currencies
of central banks have entered development and steering phase
Source: BIS, Paper No 114 - January 2021
Payment behaviour is changing. Cash is being used less and less with the generalisation of bank card payments: just 28% of the amount of point-of-sale transactions is made in cash according to the Banque de France, and is declining year-on-year.
In order to support these societal changes, improve the efficiency of payment systems and remain competitive, central banks are exploring the potential of innovative technologies. The ambition of creating a Central Bank Digital Currency (CBDC) is not to replace cash but to offer an alternative.
Presented as a digital token, CBDC supports solutions to societal issues such as financial inclusion. For example, it makes it possible to democratise access to the financial system for the "unbanked" access to mobile telephony, whose networks are much wider than the banking network. The ability to receive and send money is very important for disadvantaged members of society, allowing them to escape from poverty.
Today, most central banks are working on CDBC projects and, as announced by the European Central Bank, the project of a digital euro should see the light of day within five years.
Against this backdrop, do you want to know more about advances made by central banks regarding digital currencies?
The cryptocurrency and blockchain experts of the PwC network have created the Global PwC CBDC Index. Discover the main findings of the first edition of the Global PwC CBDC Index: a barometer that ranks the most advanced countries.
Adoption of CBDCs will transform the current, global monetary system. The introduction of CBDCs gives businesses and citizens direct access to a digital currency backed by assets held by central banks.
The financial sector and especially the banking sector will be significantly impacted, as the latter plays an intermediation role between central banks and businesses in the field of investment and savings. For companies, such a configuration could impact the treasury strategies of finance departments and offer opportunities in integrating payment systems with integrated management software packages, or supply chain tools in the context of automated electronic contracts
The impact on the economy and companies will depend in particular on the choices of operational architecture of the CBDCs implemented. It is therefore necessary for payment and treasury teams to anticipate the impact that these changes will have on their business model and:
seize the opportunities for transforming business models, particularly in terms of market infrastructures;
be ready to face an acceleration in the digitalisation of means of payment through the integration of CBDC;
Anticipate regulations in order to comply with them.
Central bank digital currencies come in two forms:
Retail CBDC, accessible to the general public is a complement to physical notes, is backed by asset held at the central bank, just like cash. As the digital equivalent of banknotes and coins, it offers a new option for holding and exchanging money.
The CBDC in a wholesale or "interbank" version, is accessible only to banks to settle transactions on financial assets.
The development of this form of CBDC could accelerate the integration of distributed ledger technologies into existing market infrastructures and their transformation.
Indeed, the possibility of paying in CBDC for tokenised financial securities,solving some of the problems of interoperability between traditional systems and distributed ledger technologies.
For several years now, many countries have been undertaking research or trialling CBDC projects. This acceleration has been accompanied by the development of new use cases of blockchain technologies, encouraged by the emergence of private digital currency projects. We note a predominance of projects applied to "retail" CBDC and very advanced experiments on "interbank" CBDC.
The Global PwC CBDC Index is an index designed to measure the level of maturity of different territories regarding CBDCs.
It includes three main variables indicating the state of progress of CBDC projects, the level of support from central bankers and public interest in these developments.
Sources: BIS Working paper No 880, World Bank and PwC Analyses.
CBDCs could represent new forms of programmable monetary instruments and allow automatic payment to be triggered, according to pre-programmed conditions.
According to PwC's analysis, blockchain will be the technology of choice for central banks. It represents an opportunity to modernise currencies issued and regulated by central banks. Its use as a technological support for a central currency brings notable advantages such as greater transparency of flows and increased efficiency in transferring money.
It represents an opportunity to modernise currencies issued and regulated by central banks. Its use as a technological support for a central currency brings notable advantages such as greater transparency of flows and increased efficiency in the transferring of money.
Programming a currency will allow the development of numerous applications:
CBDC payment against the delivery of financial securities in automated settlement processes.
Directed currency: for example, the identification of public aid;
Collateral currency: a system for automatically releasing reserve funds according to conditions programmed in advance between two financial counterparties.
« CBDCs provide the missing solution to make the existing monetary system work with distributed ledger technologies. »
Central banks are the main players involved in CBDCs. They will impact the international financial infrastructure and fundamentally alter the process for exchanging value, both unilaterally, and bilaterally. This is a step that should be of interest to all companies, even those indirectly affected.
In order to accompany clients through these changes, PwC teams are working on CBDC projects to better understand their arrival:
PwC France provided its expertise to a major player in the Central Bank Digital Currency experiment launched by the Banque de France in March 2020.
This call for projects was launched to explore the opportunities that this innovation could bring in the field of interbank payments. The lessons learned from these experiments will feed into the Eurosystem's more global reflection on the interest of a CBDC.
"It is in line with the trend towards digitalisation of the economy that central banks are examining the possibility of issuing a CBDC, which would, if necessary, be designed to enable the central bank money to continue to fulfil its role as a monetary and financial anchor, at a time when digital technology is strongly influencing payments and financial transactions. »
The three main areas of analysis:
To explore new ways of exchanging financial instruments (excluding crypto-assets) for central bank money;
To test settlement in central bank digital money to improve the conditions for executing cross-border payments;
To review the arrangements for making central bank money available.
The Banque de France has selected 8 consortia, which have already produced some pilots such as CBDC settlement of money market funds in January 2021.