Stephen Deane and Olivier Fines discuss the findings of a global survey on CBDCs, focusing on views from respondents in mainland China.
As the 2022 crypto winter recedes, digital assets are gradually regaining their lost popularity. And many regulators and governments around the world are exploring the possibility of launching Central Bank Digital Currencies (CBDCs) to keep up with the trend.
According to findings in the “CFA Institute Global Survey on Central Bank Digital Currencies (CBDCs)”, 40% of respondents reported a low level of knowledge towards CBDC, while 47% claimed a moderate level. The survey also asked whether the respondents supported central banks launching CBDCs, and 42% were supportive while 34% were not, displaying quite divergent opinions.
Regionally, the level of support among emerging markets is much higher than in developed markets. This could be explained largely by the level of satisfaction with available payment mechanisms and the pace of technological innovations.
Government commitment to CBDCs may also play a role in attitudes in mainland China. Of all the markets surveyed, mainland China sits at the top, with 70% supporting the introduction of a CBDC and 80% saying that they would use CBDCs issued by the central bank. That level of support was closely followed by India at 66%. Less than half of the respondents from the US and the UK expressed support.
This aligns with the relatively high level of enthusiasm in Asia, particularly mainland China, which is often regarded as a pioneer in digital finance. With the People’s Bank of China (PBOC) setting up a task force to study digital fiat currency in 2014, mainland China is at the forefront of the technology. The PBOC decided to launch a pilot digital currency, e-CNY, in 2019. Although the adoption rate remains low, mainland China’s intention to issue a centralised digital currency goes back almost 10 years ago.
A natural follow-up question would be: Why do people support the central bank to launch CBDCs? The global data reveals that the primary reason why respondents show support is that CBDCs could significantly accelerate payments and transfers, which would further reduce counterparty and settlement risk. Higher efficiency would be more notable in wholesale payment and cross-border transactions, which involve large sums of money and additional regulatory concerns.
Many people also believe that if the world is moving towards digital currencies, governments should be responsible for guiding the process – “central authorities should play a central role in the development of cryptocurrencies” is the reason ranking 2nd globally. Remarkably, this elicited a 100% response rate in mainland China compared to 30% globally. This hints at the support that mainland Chinese respondents showed for government intervention to provide impetus to the evolution.
If central banks do launch CBDCs, there will be a wide range of features that could be introduced. Among global respondents, only a minority (24%) would like to have embedded programmability, while nearly half (49%) did not know or had no opinion. In mainland China, a slight majority (53%) want CBDC to be programmable, and a relatively small percentage (29%) did not know or had no opinion.
A majority of mainland Chinese respondents (53%) also believe that there should be a quantitative limit for the amount of CBDCs that people are allowed to own. Moreover, a majority of the global respondents are opposed to central banks offering direct credit to individuals and businesses through CBDCs, although 58% of mainland Chinese respondents are in favour of this feature. These responses suggest the level of support in mainland China for the PBOC to be in charge of developing and introducing a CBDC.
As a recent Working Paper of the International Monetary Fund (IMF) pointed out, CBDCs have the potential to improve financial inclusion, but it seems that the general perception contradicts this viewpoint– almost half of the global respondents think that CBDCs will have no or negligible impact on financial inclusion in under-served economic sectors or populations.
On the contrary, mainland China and India are the top markets with the most positive view towards the digital asset’s ability to boost financial inclusion, echoing their high level of support towards CDBCs. Indeed, emerging markets might take CBDCs as a way to speed up their economic development.
For instance, if CBDCs are designed with offline capabilities, that could increase financial engagement among populations that have limited access to online banking services. Developed markets may offer greater access to electronic communications infrastructure and less risk of network interruptions. Nevertheless, a majority of respondents in developed markets consider offline capabilities to be critical for a CBDC.
Having said that, CBDCs are still at an early juncture and could pose certain risks to the economy. Around the world, people are most worried about cybersecurity risk and the potential for fraud that the digital asset could bear. Data privacy is another issue, since the government, as the issuer, could have access to user information, which sets CBDCs apart from traditional cryptocurrencies.
Indeed, the IMF has warned of the danger of a central authority collecting a huge amount of payment and user data. In theory, this risk could be mitigated—although not entirely eliminated—in a number of ways, one of which is by adopting cryptographic tools that are prevalent in other crypto assets. These tools authenticate private information without revealing it and allowing it to be compromised, and could be further expanded to encrypt not just the identities of the involved parties, but also the transaction amount and other transaction details.
As the CBDC developments pick up speed, we can expect to see more markets launching their own digital currencies. Just with any other new technological invention, it is crucial that we acknowledge both the benefits and risks of adopting CBDCs. Nobody knows for sure how far away a cashless future is, but navigating with caution and care could bring societal benefits over time.
The authors are Stephen Deane, Senior Director, Capital Markets Policy, Americas, CFA Institute; and Olivier Fines, Head of Advocacy EMEA, CFA Institute.