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The list of people not yet sold on the idea of central bank digital currencies continues to grow. There are academics, policy wonks, cranks and, increasingly, central bankers:
The chart above is from a Future of Payments report from the OMFIF’s Digital Monetary Institute, which includes its annual central banker survey. Just 13 per cent of respondents picked CDBCs as the most promising fix for cross-border payments, down from 31 per cent last year.
Only 10 per cent of the central bankers surveyed said they’re still working on the concept, compared to 21 per cent last year.
The DMI says this drop is “in spite of the announcement of the Bank for International Settlements’ Project Agorá [ . . . ] and of progress in Project mBridge, spearheaded by the People’s Bank of China.” The sentence makes more sense if you swap “in spite” for “because”.
Here’s a quick recap of how we got here. One of the main motivations for CBDCs is heading off the risk that a tech giant like Alibaba, Google or Meta becomes dominant in payments. Tokenisation has downsides, however, such as surrendering monetary autonomy by letting foreigners hoard treasury tokens.
The proposed solution is to create multi-currency CBDC exchanges for licensed dealers to trade among themselves. But it’s already gone VHS vs Betamax.
The BIS last month formally quit China’s mBridge, the most established cross-border CBDC project. (BIS denied the exit was politically motivated, but no one really believes that.) Its recently launched alternative, Agorá, is backed by just seven institutions, of which the Bank of Mexico is the sole emerging markets participant.
The DMI report sketches out a world where mBridge or its successors become de facto platforms for emerging economies that want to reduce their reliance on the dollar, while Agorá is for Western institutions that support the status quo of US dominance. (Russia’s efforts to create a Brics payment network are mentioned only in passing.)
How might parallel systems speak to each other? The most likely answer is that they won’t. Survey respondents express a preference for a hub-and-spoke network of technological and regulatory standards that would sit atop their domestic CBDCs, if only because all the alternatives seem even less plausible. Work on any kind of solution has barely begun:
Fragmentation can only add to the CBDC governance problem. Professor Barry Eichengreen wrote in the FT a year ago that for cross-border settlement to work . . .
… multiple governments and central banks would have to agree on who to license as authorised CBDC dealers. Regulators would have to oversee their dealings, ensuring that their inventories of the relevant CBDCs were adequate. Central banks would have to stand ready to act as liquidity providers of last resort. All this would require the equivalent of the Basel Committee on Banking Supervision, but on steroids.
Finally, it looks like that message is getting through.
And while optimism around CBDCs has faded, calls to upgrade the existing infrastructure are constant. Nearly half of bankers in the survey see improvements to instant payment systems as the most promising path to take.
Unfortunately, slow progress here speaks of high legal and regulatory hurdles, as well as of vested interests and industry obduracy.
The interbank Swift system is rolling out a new messaging format that has the potential to simplify many cross-border transactions. The adoption deadline is November 2025. According to the DMI survey, a third of respondents say the institutions they supervise are likely to miss it. A lack of progress is most obvious in emerging markets, where it’s most needed:
Swift has been around for more than five decades. Its governance structure demands diversity and it can sidestep most direct regulation, since it transmits messages about transactions and not the actual money. Swift’s struggle to get one software update rolled out across the network should tell you all you need to know about the chances of a multi-currency CBDC ever existing.
Full report here.
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