Interview
What’s Next for Central Bank Digital Currencies
- CBDC projects are projected to accelerate within a one- to two-year timeframe as central banks aim to mitigate financial stability risks posed by private digital currencies.
- Anticipated future CBDC designs will likely combine token and account structures, intermediated by commercial banks, while utilizing distributed ledger technology or a hybrid with centralized clearing.
- Specific technical features for upcoming CBDCs include non-interest-bearing status and capabilities for small-scale offline payments similar to cash.
- The Federal Reserve intends to launch the FedNow real-time payment system by 2023, while current design choices are expected to evolve as most projects remain in development.
- To prevent bank disintermediation, central banks plan to limit CBDC holdings through unattractive features, including potential penalty interest rates on holdings exceeding defined thresholds.
- Future frameworks may enable commercial banks to set customer CBDC interest rates, with central banks lending back at the chosen rate plus a fee.
- Greater openness to disrupting payment systems is expected to encourage innovation, potentially reducing credit card fees and inviting new competitors into the market.
- New market entrants could compete on fees if granted access to Fed clearing and if the CBDC platform covers fixed costs such as fraud detection.
- Initial CBDC versions are expected to yield modest monetary and fiscal policy benefits, though radical designs could enable automatic, variable tax rates by time or geography.
- Advanced CBDC capabilities might allow the Federal Reserve to adjust interest rates in real-time based on economic conditions and data derived directly from the platform.
- Policymakers may implement modest "autopilot" mechanisms for tax and interest rates to facilitate economic stabilization, although this outcome remains uncertain.