Digital currency

CBDCs for the People? Where the Current State of Digital Currency Research Leads

John Kiff, Jonas Gross

While much attention focuses on the retail central bank digital currency (CBDC) ruminations of China, Europe and the United States, smaller jurisdictions are leading the way. For example, Uruguay, the Bahamas, the Eastern Caribbean Central Bank, Nigeria and Jamaica have each launched pilot CBDCs over the past three years.

The potential benefits of CBDCs are numerous – from automating certain tax payments to preserving a nation’s monetary sovereignty – if only theoretical at this stage. The idea is to revamp a crucial part of society, how money is issued and flows through an economy, and so, even small design choices can have substantial effects.

So central banks are proceeding carefully, but given the amount of intellectual effort being expended, it’s likely CBDCs will have a place in the global financial system.

This article is part of CoinDesk’s Future of Money Week, a series exploring the varied (and sometimes weird) ways value will move in the future.

Overview of the CBDC landscape

According to our CBDC Tracker, at least 64 central banks are exploring a retail CBDC, of which 20 have been launched or tested or are in the very advanced exploration stages. We say “at least” because our count is based on reliable public sources (almost all from the central banks themselves). However, according to the Bank for International Settlements (BIS), 58 of the 65 central banks surveyed at the end of 2020 were exploring retail CBDC. In any case, the growth in the number of retail CBDC explorers has been remarkable.

It is important to be clear about what is and is not a retail CBDC. The BIS defines a retail CBDC as a broadly available general purpose digital payment instrument that is denominated in the jurisdiction’s unit of account and that is a direct liability of the jurisdiction’s monetary authority. There is also a “wholesale CBDC,” which is limited to a set of predefined user groups, typically financial institutions. That’s not what we’re talking about here. Also the “direct liability of the monetary authority” condition precludes the Marshall Islands SOV and Cambodia’s Project Bakong.

There are six jurisdictions that have either fully launched (Bahamas) or have started pilot programs (China, Eastern Caribbean Central Bank, Jamaica, Nigeria and Uruguay). Another 14 are in the advanced stages of retail CBDC research, of which six have started or soon will start proofs of concept (Bhutan, Ghana, Japan, Korea, Sweden and Ukraine). Proofs of concept differ from pilot programs in that proofs of concepts take place in a laboratory setting (e.g., among central bank staff) and pilot programs involve “real world” testing, typically among limited populations.

The vast majority of central banks studied are in an exploratory stage, typically consisting of desk research and perhaps some reaching out to technology platform providers. Some in this group may actually belong in the “advanced” group, but we have no direct evidence of that based on central bank communication.


For emerging market and developing economy (EMDE) countries, some of the main motivations for launching or testing a retail CBDC are financial inclusion and payment system efficiency, including reducing the costs/risks of managing physical cash and higher payment system resilience/safety. Fighting illicit activities is another key theme. Protecting monetary sovereignty, whether it be pushing back on dollarization or the encroachment of private digital currencies such as the Facebook-initiated diem project, is a common theme among both EMDE and advanced economy (AE) central banks.

For China and some other advanced economy central banks that haven’t yet started pilot programs, reducing the monopoly powers of private payment systems (e.g., AliPay and WeChat Pay in China) is one reason to explore a retail CBDC.

Design choices

Retail CBDC design choices depend on policy objectives and country specifics, but among those retail CBDCs that have launched, there is much in common.

Business models

In a single-tier model, the central bank performs all the tasks involved, from issuing and distributing the CBDC to running user wallets. In multitier models, the central bank issues and redeems the CBDC, but distribution and the operation of payment services are delegated to private-sector payment service providers (PSPs). Which model to adopt will depend on country specifics, such as the breadth and depth of the country’s financial sector, financial integrity standards, compliance, the availability of financial market infrastructure and supervision capacity.

All retail CBDCs that have been launched or tested run on multitiered business models of the “intermediated” variety, as described in a recent BIS paper. In this variation, PSPs back the CBDC they distribute in wholesale accounts at the central bank, which has no direct record of individual CBDC holder balances. The central bank, however, maintains a backup copy of individual balances it would use to restart payments should a PSP fail. Presumably, the PSP’s CBDC wholesale account is legally ring-fenced from the PSP’s other operations and immediately available to the central bank in such an event. So far, no central banks have opted for a “hybrid” model, where the PSPs are merely agents on behalf of the central bank.

Holding/transaction limits

Central banks face a CBDC design trade-off between satisfying user preferences for privacy and giving authorities access to user identities and transaction data to mitigate the risk of illicit financial activity. Privacy preferences may be driven by fear of spamming and identity theft, and of being stalked or robbed. Also, a fully transparent CBDC might raise concerns about digital surveillance, especially in jurisdictions where trust in public institutions is low. Such a CBDC might also exclude those who lack an ID. Most central banks, however, are effectively obligated to meet the Financial Action Task Force (FATF) anti-money laundering and countering terrorist financing (AML/CFT) standards.

Almost all central banks that have launched retail CBDC have taken similar approaches to applying “proportionality” to their compliance with FATF AML/CFT standards by allowing for more privacy on low-value holdings/transactions.

For example, China’s eCNY users are identified only by their mobile phone SIM cards for the lowest tier of access (a holding limit of ¥10,000, and transactions are limited to ¥2,000 up to ¥5,000 per day). However, by providing full names, addresses and phone numbers, and by linking the CBDC wallet with their bank accounts, users see their limits increase substantially (¥500,000 holding, ¥50,000 per transaction and ¥100,000 per day). Jamaica is the exception, in that there are no limits on CBDC holdings or transactions, but all holders face full-blown know-your-customer (KYC) requirements. Also, central banks typically have access only to pseudonymous data, but in some cases can reveal data or a person’s identity if they can show probable cause to do so (e.g., with a court order).

Other design choices

In terms of the main design features of retail CBDCs that have been launched and tested, none of them pay interest, charge transaction fees or incorporate smart contracts capabilities. So far, only the People’s Bank of China seems to be experimenting with totally offline retail CBDC payments and programmability of payments. However, the Bahamas sand dollar can effectively be used by users when they are abroad through a Mastercard prepaid card, but receivers get their own national currency as payment, not sand dollars.

A diversity of technical platforms, both centralized and distributed ledger technology (DLT) based, have been deployed, although those adopting distributed ledger technology have opted for the private permissioned network variety, mainly based on Hyperledger Fabric, an open-source blockchain framework hosted by the Linux Foundation. The Hyperledger Fabric technology allows for control over platform participants and their access to the platform, and role-based oversight and visibility of transactions. Private permissioned platforms also ensure that the central bank retains full control over money issuance and monetary policy. Again, Jamaica is unusual in that its retail CBDC doesn’t use centralized or decentralized ledger technology. Instead, it is a digital bearer instrument without a ledger.

What’s in the pipeline

Most of the 12 central banks that are known to be in the advanced stages of retail CBDC deliberations view retail CBDC as a contingency plan. For example, Bank of Canada officials have said that a digital loonie could be introduced if cash usage continues to decline or stablecoin usage accelerates, or both. The European Central Bank (ECB) has a similar view on a digital euro.

Although the U.S. Federal Reserve is conducting a major retail CBDC research program, Christopher Waller, a member of the Fed’s board of governors, has described a digital dollar as a “solution in search of a problem.” As CoinDesk columnist J.P. Koning points out, for several advanced economy countries, “everything that a CBDC is supposed to fix can already be achieved by another existing process or institution – and these alternatives are typically cheaper and less risky.”

And even if central banks in some advanced economies move in the direction of issuing a retail CBDC, the road will be long and ponderous. The Bank of England has said that if the results of its development work “conclude that the case for CBDC is made, and that it is operationally and technologically robust, then the earliest date for the launch of a U.K. CBDC would be in the second half of the decade.” The ECB has said that a digital euro could come in 2026 at the earliest.

Nevertheless, central banks in advanced economies are so transparent in their deliberations, compared with the stealthier central banks in emerging markets and developing countries, we know a lot about what might be coming down the retail CBDC pipeline.

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