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Report: Central Bank Digital Currencies in Asia and the Pacific

The rise of central bank digital currencies (CBDCs) is a global phenomenon. As of August 2022, two central banks have formally launched a CBDC: the Central Bank of the Bahamas (Sand Dollar), and the Central Bank of Nigeria (e-Naira), while two others are in advanced pilots.1

The interest in CBDCs, however, goes far beyond these countries. Out of the 109 countries tracked by the Atlantic Council (2022), 105 countries, representing more than 95% of global GDP, are exploring CBDCs in some form.

This is a significant increase from the 35 countries that were considering CBDCs in May 2020.

Similarly, the Bank for International Settlements (BIS 2022a) found that about 90% of the 81 central banks in their survey (representing 94% of global economic output), are exploring CBDCs with more than half developing or running concrete pilot projects.

Interest and work toward central bank digital currencies by countries in the Asia-Pacific region has been gaining momentum for some time.

The Asia-Pacific region covers countries in a wide spectrum of income groups and stages of financial development; thus, it is not surprising that there is great heterogeneity in their progress toward developing CBDCs.

The interest in CBDCs has significantly grown in recent years, as captured by the number of times CBDCs are mentioned in speeches.

The rapid increase in considering a CBDC in the Asia-Pacific region is not limited to the more advanced economies with developed financial markets.

While China has been at the global forefront of experimenting with central bank digital currencies, emerging markets, such as India and Thailand have made rapid progress, and several low-income countries (LICs) and Pacific Island Countries (PICs), such as Nepal and the Marshall Islands, are looking into research and development.

The surge in crypto assets in 2020–21 accelerated many central banks’ interest in CBDCs in an attempt to provide an alternative means of payment and counteract the volatile nature of unbacked private crypto assets and contain their risks to the financial system.

Asian economies participated strongly in the crypto rally, but also in the eventual bust in 2022. As in other regions, 2021 was characterized by a strong growth of the crypto asset transactions and volumes.

In August 2021, the total volume of crypto assets had grown by 230% year over year in Asian emerging market economies and by more than 300%  year over year in advanced Asian economies.

The crypto bust and ensuing “crypto winter” in 2022 have reduced volumes in Asia like in the rest of the world, but the interest of policymakers to safeguard the payment system and provide consumer protection has now accelerated, including the search for a consistent regulatory treatment of crypto assets and potential integration with CBDCs in some cases.

CBDC development is also at the forefront of discussions in other international forums like the Executives’ Meeting of East Asia Pacific Central Banks (EMEAP).

EMEAP members are taking into consideration the implications of CBDCs for monetary policy operations and central bank balance sheets, and their interoperability with other forms of payment. Members are still at various stages of development, and each has different design considerations specific to their respective markets and policy requirements.

This IMF paper puts Asia-Pacific countries in the spotlight.

In early 2022, the IMF conducted a survey of IMF country teams and country authorities in the Asia-Pacific region, covering 36 Asian economies: 7 advanced economies, 10 emerging market economies, 8 LICs, and 11 PICs.

The survey responses for the PICs are reported separately as their characteristics are different from other Asian economies, though both country groups share common challenges.

Additionally, the note covers 14 case studies to provide more granular details on the CBDC landscape in the Asia-Pacific region.

Asia-Pacific countries have been at the forefront of digital innovation, and their interest in CBDCs is a natural next step. There are many reasons behind Asia’s interest in CBDCs.

Some countries, including, for example, India and the Philippines, have built very successful payments systems, yet financial innovation in the form of a CBDC could let countries improve their current frameworks by lowering transaction costs and increasing efficiency.

Promotion of financial inclusion and financial stability are among other motivating factors for countries across the region, especially in middle-income countries.

Since safeguarding macro-financial stability is at the core of the IMF’s functions, it is imperative for the IMF to be fully informed of these developments to support its surveillance and capacity building activities.

The structure of the paper is as follows. First, it describes the design of the current survey and reviews how it differs in focus and coverage from other surveys.

The paper then turns to the key results and tries to augment the findings from a review of selected country case studies.

Next, it distils some key lessons for others in their journey in this area. It concludes by providing some insights and considerations for the way forward.

To read the full paper CLICK HERE

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