CBDCs on the rise – UK still planning for digital pound

The forecasted growth of Central Bank Digital Currencies (CBDCs) represents a shift in global payments, with predictions indicating CBDC transactions could surge from 307 million in 2024 to 7.8 billion by 2031.

CBDCs on the rise

This remarkable increase of 2,430% highlights a broader effort among central banks to strengthen monetary control and streamline cross-border payments as they contend with the influence of established card networks and the rise of stablecoins.

Central banks are strategically considering CBDCs as a way to modernise payment systems, while retaining financial oversight.

CBDCs, essentially digital representations of national currencies, offer governments a method to retain sovereignty over monetary policy, preventing the financial dominance of unregulated alternatives like stablecoins and cryptocurrencies.

Projects like mBridge and Project Icebreaker, led by global organisations, are particularly significant as they aim to enable interoperable CBDCs across borders.

By linking these digital currencies internationally, nations hope to reduce reliance on conventional payment infrastructures, potentially lowering costs and increasing transaction speed in international remittances and trade settlements.

The anticipated savings from these payment innovations are notable.

CBDCs and stablecoins are expected to reduce cross-border transaction costs by $45 billion by 2031, providing much-needed relief for individuals and businesses that currently face high fees and complex procedures for international transactions.

Lorien Carter, the study’s lead researcher, notes that CBDCs and stablecoins are not only paving the way for cost savings but are also enhancing global financial inclusion, reducing dependency on the US dollar, and creating a more resilient digital economy.

To ensure these benefits reach their full potential, experts emphasise the importance of interoperability among CBDCs.

The development of isolated, non-compatible digital currencies could lead to “digital islands,” where each CBDC operates within its own silo, undermining the efficiency and accessibility that CBDCs promise for cross-border transactions.

Collaborative projects led by the Bank for International Settlements (BIS) and other global bodies are seen as critical in fostering interoperability standards that would allow CBDCs to function seamlessly on a global scale.

Digital Pound

However, while central banks like the Bank of England are preparing for a possible retail CBDC, concerns remain.

Governor Andrew Bailey has expressed caution, noting that while CBDCs offer potential benefits, they are not necessarily the ideal option.

“That (CBDC) is not my preferred option, but it’s one we can’t rule out,” Bailey said at the Group of Thirty in Washington, a forum for central banks and commercial bankers.

“Commercial bank money, i.e. the banking system, is the best home for that innovation,” Bailey said. “But…are they the only game in town? At the Bank of England we’re continuing to prepare for a retail CBDC, because to be frank we are not yet seeing enough evidence that innovation will happen in the commercial banking system.”

Bailey highlighted that the current commercial banking system is highly efficient and offers zero-cost transfers for the public.

Yet, he acknowledged that commercial banks have been slow to innovate, likely due to the profitable “rents” they earn from existing payment systems.

As CBDCs continue to gain traction, the next decade could mark a turning point in global payments, with central banks and governments balancing innovation, consumer protection, and financial stability.

The move toward a regulated, interoperable CBDC ecosystem may redefine how individuals and businesses engage in cross-border transactions, potentially setting new standards for a truly globalised digital currency system.

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