CBDC – the next milestone in the evolution of payments?

Written by Chris Glennie Partner at CMS Law and formerly at The Bank of England.

Introduction

In an ever changing payments landscape, the interest in central bank digital currencies (CBDC) has grown considerably. According to a survey conducted by the Bank for International Settlements (BIS), CBDC is being considered by nine out of ten central banks. In fact, certain countries such as Jamaica and the Bahamas have already launched a CBDC. But what is a CBDC? Put simply, it is a digital form of fiat money issued by a central bank. It can generally either be a retail CBDC, in which case it is available to the general public for everyday payments (in the same way as banknotes), or a wholesale CBDC, in which case it may only be available to financial institutions for the wholesale settlement of high value payments.

Benefits and risks of a CBDC

Advocates for a CBDC talk about financial inclusion and accessibility (particularly for developing countries), cheaper, faster and more secure payments and better data (which could help combat financial crime). They also point to CB…