Taking stock of progress toward the vision
Where do central banks stand in achieving this vision of the future monetary
system? Substantial efforts are under way, and central banks are working together
with one another, with other public authorities and with the private sector to
expand the frontier of capabilities in the monetary system.
Globally, a full 90% of central banks recently surveyed are doing some form of
work on wholesale or retail CBDCs.49 A number of wholesale CBDC pilots are under
way, often involving several central banks in different jurisdictions. There are three
live retail CBDCs and a full 28 pilots. This includes the large-scale pilot by the
People’s Bank of China, which now counts 261 million users.50 Meanwhile, over
60 jurisdictions now have retail fast payment systems, with several more planned in
the coming years – such as FedNow in 2023.51 The BIS Innovation Hub is developing
mCBDC platforms in partnerships with member central banks. These are Project
Jura (with the central banks of Switzerland and France),
Project Dunbar (with
Singapore, Malaysia, Australia and South Africa), and mBridge (with Hong Kong SAR,
Thailand, China and the United Arab Emirates).
A recent stocktake by the Innovation Hub draws lessons from mCBDC
experiments to date.52 These have demonstrated their feasibility from a technical
perspective using different experimental designs. They have also shown the
potential for much faster, lower-cost and more efficient international settlement,
without the need for intermediaries such as correspondent banks. On the retail
side, the Innovation Hub, through its Hong Kong, London and Nordic centres is
advancing work on cyber-secure architectures,
building an open API ecosystem for
retail CBDCs, and exploring resilient and offline CBDC systems.
BIS Annual Economic Report 2022 103
Achieving frictionless payments in the global monetary system requires strong
cooperation between central banks, combined with innovation in the private sector.
Supporting these efforts is a comparative advantage of the BIS that arises from its
mandate for international settlements. Indeed, the BIS has already developed
proofs-of-concept and prototypes in near real-world settings. These can help to
draw policymakers’ attention to the actual issues they are likely to encounter. They
also show that cooperation is possible even when central banks take different
approaches to some key policy issues.
In sum, central banks are working together to advance domestic policy goals
and to support a seamlessly integrated global monetary system with concrete
benefits for their economies and end users.
The solutions they use will draw on a
range of new technologies, some inspired by the crypto monetary system, but
grounded in the solid institutional frameworks that exist today. By adapting the
system now, central banks will help to make money and payments fit for the
decades to come.
Conclusion
The monetary system is a crucial foundation for the economy. Every time
households and businesses make payments across the range of financial
transactions, they place their trust in the safety of money and payment systems as a
public good. Retaining this trust is at the core of central bank mandates.
Rooted in this trust, the monetary system must meet a number of high-level
goals to serve society. It must be safe and stable, and key entities must be held
accountable for their actions.
This way, the integrity of the system is ensured. Fast,
reliable and cheap transactions should promote efficiency and financial inclusion,
while users’ rights to privacy and control over data must be upheld. Finally, in an everchanging and globally connected world, the system must be adaptable and open.
Recent events have shown how structural flaws prevent crypto from achieving
the levels of stability, efficiency or integrity required for a monetary system. Instead
of serving society, crypto and DeFi are plagued by congestion, fragmentation and
high rents, in addition to the immediate concerns about the risks of losses and
financial instability.
This chapter has laid out a brighter vision of the future monetary system.
Around the core of the trust provided by central bank money, the private sector
can adopt the best that new technologies have to offer, including programmability,
composability and tokenisation, to foster a vibrant monetary ecosystem. This will
be achieved via advanced payment rails such as CBDCs and retail FPS.
A public-private partnership on these lines could make the monetary system
more adaptable and open across borders. A decade hence, users may take realtime, low-cost payments for granted, and payments across borders may be as
seamless as the cross-border exchange they support. Consumer choice in financial
services should be increased, and innovation will continue to push the frontiers of
what is possible.
In all of this, innovation must start from an understanding of the concrete
needs of households and businesses in the real economy – and of the policy
demands they put on a monetary system. While decentralised technologies such as
DLT offer many possibilities, users’ needs should stay at the forefront of private
innovation, just as the public interest remains the lodestar for central banks.
In both the design of new infrastructures and in regulation, there is an ongoing
need for global cooperation between central banks, and indeed a wide range of
new stakeholders. Supporting this cooperation will remain a key goal of the BIS.
104 BIS Annual Economic Report 2022
Endnotes
1 See the BIS Red Book Statistics, which collect data for retail cashless payments
in 27 countries, https://stats.bis.org/statx/toc/CPMI.html.
2 See Giannini (2011); Borio (2018)); Carstens (2019).
3 See BIS CPMI (2016); BIS (2021).
4 At present, there are no clear and harmonised guidelines as to who can serve
as an oracle, or who is held accountable if a smart contract acts upon incorrect
off-chain information. As it is impossible to write ex ante a smart contract that
covers every possible contingency, some degree of centralisation is needed to
resolve disputes.
5 Security in DLT refers to the robustness of consensus, ie confidence that the
shared ledger is accurate. Security can be threatened by malicious actors who
compromise the ledger to execute fraudulent transactions, as in a 51% attack
(see glossary).
6 See glossary for a definition, Schär (2021) for an in-depth description, and
Aramonte et al (2021) and Carter and Jeng (2021) for an assessment of risks
and decentralisation. It is noteworthy that, even if DeFi often relies on
anonymous and permissionless DLT to achieve decentralisation, permissioned
DLT also allows for the use of smart contracts and associated composability
(Auer (2022)). In this case, a set of centralised validators are in charge of
validating transactions.
7 See Aramonte et al (2021).
