As the financial sector seeks to integrate the use of crypto, central banks are exploring possible ways to launch a digital currency. A survey conducted by the Bank for International Settlements (BIS) demonstrated that 94% of the central banks were working on developing the central bank digital currency (CBDC).
The BIS noted that most central banks developing the CBDC prefer to issue digital currency wholesale rather than retail in the next six years.
Central Banks Prefers Wholesale CBDC to Retail Digital Dollar
Since the CBDC is still a new concept, the central banks prefer issuing wholesale to retail. The BIS report explains that the CBDC wholesale involves transactions between banks and financial institutions.
Conversely, retail CBDC refers to the use of digital currency for public purposes, such as buying and selling commodities. The BIS report demonstrated that the issuance of wholesale CBDC restricts regulators from controlling individual spending.
The BIS noted that central banks opting to issue retail CBDC were still planning to protect the holding limits and were working on integrating additional features such as an offline option, zero compensation, and enhanced interoperability capability.
The study participants involved around 86 central banks that were working to implement their CBDC. Currently, China has successfully launched its CBDC to improve the accessibility of its financial tools.
The BIS conducted the survey between October 2023 and 2024 to examine the progress of CBDC development. In addition to analyzing CBDC’s development, the BIS examined the use cases of different classes of crypto assets.
Benefits of CBDC
The international financial institution observed that stablecoins were rarely used in transactions outside the crypto sector, which implies that they were used in transactions involving crypto activities.
Despite stablecoin’s slow adoption in the traditional finance sector, the BIS noted that two out of three study areas were actively working on formulating regulations for crypto assets pegged to a dollar or gold.
According to DefiLlama the stablecoin market cap reached $162 billion a $32 billion increase from January 2024. This implies that the stablecoin use case has risen since January.
Despite the stablecoin adoption being on a silent rise, the dollar-pegged crypto has faced tides of criticism. Earlier this year, the US Presidential aspirant Donald Trump vowed not to support the development of retail CBDC if they were elected.
Trump complained that CBDC confers the government rights to monitor individuals’ financial positions. The presidential candidate pledged to refrain from allowing the development of CBDC in America since the digital dollar threatens individual freedom.
Legislators Oppose Development of Retail CBDC
In support of Trump’s remarks, the governor of Florida, Ron DeSantis, opposed the implementation of CBDC. The governor seeks to end Biden’s war on Bitcoin by imposing a new rule that allows Florida residents to make Bitcoin payments.
Elsewhere, the Swiss National Bank revealed a plan to pull from the development of CBDC. The SNB stated that CBDC’s shortcomings outweigh its benefits.
A statement from SNB governing board member Andrea Maechler stated that the benefits of CBDC in public use were minimal. The executive projected that the retail CBDC posed more risks that could possibly lead to a bank run.
Maechler confessed that CBDC was not an adequate tool to improve financial inclusivity in the region.
The executive stated that nearly 100% of the Swiss population has access to a bank account. This implies that the number of unbanked Swiss nationals is minimal.
Maechler stated that the SNB will still pursue developing the wholesale CBDC, which will primarily focus on enhancing the transactions between banks and financial institutions.
Elsewhere, the Banks of Canada engaged in public consultation to gather critical information on the development of CBDC. The bank used the survey method to obtain public feedback concerning the development of the Canadian digital dollar.
The respondents were against the development of the CBDC due to privacy concerns. The Canadian resident complained that the development of CBDC would allow regulators to spy on their financial activities.
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