Sibos: CBDC case studies in China, Kazakhstan, the Bahamas, and Europe

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On the second day of Sibos, Benedicte Nolens, centre head of the BIS Innovation Hub moderated the session ‘Reality check: How far have CBDCs come?’, and the speakers outlined how central bank digital currencies (CBDCs) are in various processes of development in their countries.

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This content has been selected, created and edited by the Finextra editorial team based upon its relevance and interest to our community.

The panel included Henry Campell, manager of the Central Bank of the Bahamas; Assel Marchenko CTO, deputy of CEO at National Bank of Kazakhstan; Changhun Mu, director-general at Digital Currency Institute of the People's Bank of China; and Evelien Witlox, Digital Euro project director at the European Central Bank.

Mu pushed for a market-oriented approach to CBDCs, pointing out that there is a need for market incentives to attract acquirers and that the lack of market incentives has led to less merchants willing to adopt the system. He highlighted that they need to “let the money speak”, and let every player in the ecosystem earn profit so that it can keep running.

He compared Sibos to the Olympics, saying that central banks cannot be the players: “Sibos is like the financial Olympics, and you are the players. We, as a central bank, cannot be the player. We don't play in the field. We need to design the rules. We supervise, but we don't play in the market. We should act as a coach or judge, but not a player.

“Firstly, we have to establish an ecosystem of the eCNY and CBDC, and take a market-oriented approach. That means we have to provide incentive mechanisms and establish a very complete ecosystem for the CBDC. Secondly, we have to improve the legal environment and integrate the CBDC or eCNY into the whole legal framework. Lastly, we need to raise public awareness. Let every participant in the market understand what are you doing, what your products are, and what kind of incentives you can provide. Then we can make the whole ecosystem for the market.”

Witlox detailed the progress that is being made in the Digital Euro project, which is currently in the preparation phase. This involves currency design and using feedback from stakeholders to improve the CBDC. Witlox stated that the Digital Euro is being deigned to be used in retail, which will include both an offline and online element to the CBDC. They aim to distribute the Digital Euro to merchant and consumers through payment service providers (PSPs) to create a digital ecosystem where it is not only being distributed from the central bank.

She highlighted that privacy is a pressing concern, and the Digital Euro is being designed to ensure it is guaranteed by transactions:

“We would have two digital euros. The first one is online, where you start your transaction and it will be initiated through your PSP. That service provider needs to do KYC, AML, CFT, and needs to see your data for these purposes. But, once it goes to the central bank, where it would be settled, it will be anonymised. That means that we will not be able to connect any transaction to a private individual. With that, we really think we have built a very secure Digital Euro. Then we also have the offline Digital Euro, where you would make a transaction between the two devices to secure elements, and there the transaction is not even going on a network. That level of privacy is even closer to cash.”

She continued that the Digital Euro is currently being standardised, and they are still researching the best ways to integrate the Digital Euro into the ecosystem before readying it for launch.

Campbell explained the launch of the Digital Sand Dollar platform in the Bahamas that is in limited production mode, but will be primed for use in 2025. Campbell outlined how the Digital Sand Dollar is being introduced to be used in tax management, decentralised finance (DeFi) integration, and cross-border payments.

Campbell highlighted that the Digital Sand Dollar has seen significant adoption and is increasing in circulation in the Bahamas. It is reducing the costs and risks associated with cash. He pointed out that the Digital Sand Dollar is a vital tool for financial inclusion, and it will improve adoption for underbanked populations.

Going back to CBDC developments in Asia, Mu explained the design of the tiered wallet system in China, which has four categories of personal wallets - the lowest category of which can open with the user’s phone number.

He said that a mainland China bank account is not needed for the wallet: “You only provide your mobile number to open a wallet. You don't need to provide your ID information to open a least privileged wallet. To balance between privacy protection and combating illicit transactions, such as money laundering, terrorist financing, or tax revision, we have a cap on the balance of the least privileged category of the four wallets.”

Mu added that personal information protection laws protect user’s data from telecom operators, as well as commercial and central banks, but in the case of suspicious or illicit activity, legal agencies have a warrant to access the data. Mu emphasised that personal information and maintaining anti-money laundering (AML) practices is a main focus, and that they will be using artificial intelligence (AI) and big data technologies to protect transactions.

Marchenko stated that in Kazakhstan, the objective of CBDC development is to curb corruption, boost cross-border payments, and integrate with DeFi. Marchenko added that awareness is key, and that they need to make users understand that they will not be tracking their money - they will only be tracking the use of public funds, so that citizens can be aware of where their taxes are going.

“The first of priority for us is public funds spending. To see we can actually bring clear benefits to our public, to our citizens, and show how digital thinking could help make it more efficient, transparent, and decrease this potential for corruption."

Touching on incoming trends, Marchenko predicted that CBDCs will see adoption in the future due to their interoperability and ability to facilitate cross-border transactions. Witlox discussed how the Digital Euro will provide a platform for innovation and pave the way for a pan-European digital payment ecosystem.

Looking to the future, the panelists advise that other countries and central banks which aim to establish CBDCs should have a clear business strategy for digital currency and that they should work closely with the private sector, such as commercial banks, telecom operators, and big enterprises.