SOVEREIGN DIGITAL CURRENCY – ​A NEW REALITY

Abstract

One of the most relevant and widely discussed trends in the financial sector is the development of a new payment technology – ​central bank digital currency (CBDC). CBDC is central bank-issued digital money denominated in the national unit of account, and it represents a liability of the central bank. It differs from electronic reserves (which cannot currently be accessed by individuals), physical cash, cryptocurrencies and other private digital tokens. Central banks around the world have been researching the concept and design of CBDC for several years and their work continues apace amid the COVID-19 pandemic. This general trend encompasses large differences across jurisdictions and types of economies. Each country should make its own choice of the CBDC design, taking into account its particular circumstances. Over the last years, the share of central banks actively engaging in some form of CBDC work has increased significantly. Central banks are moving from conceptual research of CBDC to experimentation and pilot projects. CBDC projects differ starkly across countries, both in their motivations and their economic and technical design. Rising number of central banks are considering retail CBDC rather than wholesale, and “hybrid” or “intermediated” operational architectures where the CBDC is a direct claim on the central bank, but the private sector manages customer-facing activity. The paper reviews the recent advances in CBCD projects, and the experience of the countries in more advanced stages of CBCD engagement, namely the particularly advanced CBDC Chinese project of the e-yuan of the People’s Bank of China and Swedish e-krona project of Sveriges Riksbank.