Central bank digital currencies (CBDCs), once heralded as a transformative tool for cross-border payments, are losing their appeal despite increasing research efforts. The latest Future of Payments survey by the Official Monetary and Financial Institutions Forum (OMFIF) reveals a stark decline in support for CBDCs.
Sharp Decline in CBDC Support
According to the report, only 13% of respondents in 2024 view CBDCs as a viable solution, a significant drop from 31% in 2023. This trend highlights a growing preference for alternative payment solutions.
Preference for Interlinked Instant Payment Systems
Nearly half (47%) of central bankers surveyed favor interlinked instant payment systems, such as the U.S. FedNow service, over CBDCs. Stablecoins, on the other hand, received no support for the second consecutive year, reflecting skepticism about their potential to enhance global financial infrastructure.
Geopolitical Tensions Affect CBDC Projects
The declining interest in CBDCs coincides with the Bank for International Settlements (BIS) exiting Project mBridge, a multi-CBDC initiative spearheaded by China and other nations. While the BIS denied political motivations, the decision underscores geopolitical tensions surrounding CBDC adoption.
Dominance of the U.S. Dollar
The survey also emphasized the enduring dominance of the U.S. dollar. Despite global uncertainties, only 11% of central banks reported reducing dollar usage. Geopolitical risks have reinforced the dollar’s status as a safe haven.
Innovations Shaping the Future of Cross-Border Payments
The global cross-border payments market is projected to reach $290 trillion by 2030, according to EY’s report. Innovations such as tokenization and the ISO 20022 messaging standard are poised to play key roles in this transformation.
Challenges in Correspondent Banking
The outdated correspondent banking system, burdened by complex Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, is under increasing scrutiny. The slow adoption of ISO 20022 is expected to exacerbate these issues, prompting central banks to explore tokenized solutions.
Tokenization Gains Traction
More than 40% of central banks in developed markets view tokenization as a promising innovation. These systems streamline compliance processes, offering a potential overhaul of cross-border payment frameworks. Many institutions plan to begin tokenization projects within the next three to five years.
Legacy Financial Systems Retain Dominance
Despite advancements, traditional instant payment systems remain the preferred choice. The BIS’s Project Nexus aims to create a unified platform for linking global payment systems, leveraging the ISO 20022 standard. Meanwhile, initiatives like Agora are experimenting with tokenized solutions.
India’s Cautious CBDC Rollout
India’s Reserve Bank (RBI) has adopted a cautious approach to its CBDC, the e-rupee. Deputy Governor T. Rabi Sankar emphasized the need for a deeper understanding of the technology’s implications before expanding its adoption.
Global CBDC Developments
Over 130 countries, representing 98% of global GDP, are actively exploring digital currencies. Nations like China, Jamaica, and Nigeria are advancing their CBDC initiatives, with India closely monitoring these developments as it progresses with its e-rupee project.
The Future of Payments
While tokenization and blockchain-based solutions hold promise, the OMFIF survey suggests that the immediate future of cross-border payments lies within traditional financial systems rather than blockchain innovations. Central bankers continue to prioritize reliable, legacy systems for enhancing global payment efficiency
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