The value of payments made using Central Bank Digital Currencies (CBDCs) will skyrocket to US$213bn a year by 2030 – up from just US$100mn this year – according to a new study from Juniper Research.
If it comes to fruition, this level of uptick in CBDC activity would represent growth of more than 260,000%. Juniper Research says the forecast reflects the nascent stage of the sector, which is currently limited to pilot projects, but also the immense opportunity for CBDCs to become a mainstream way of paying for goods and services.
CBDCs are digital pounds or dollars, issued by central banks and pegged to the country’s fiat currency. They come with some inherent rules as to how they can be used – for example, they might have an expiry date or be restricted to certain services or goods. In that respect, they’re more like vouchers than physical cash and could be used to stimulate economic growth. But because CBDCs have the backing of a central bank, they’re seen as more trustworthy than regular DeFi such as bitcoin and ethereum.
According to the Bank for International Settlements, 60% of central banks are currently experimenting with CBDCs, so we could see them being launched in the near future – but they do give rise to some security concerns. For example, because it’s a digital currency with all transactions recorded on a ledger, anyone with access to that ledger has access to your transactions. That raises the prospect that CBDCs could be used by unscrupulous governments for surveillance purposes.
Despite potential, CBDCs will initially be domestic
Juniper Research has found that, by 2030, 92% of the total value transacted via CBDCs will be paid domestically. Since CBDCs are issued by central banks, they will be closely targeted to domestic payment challenges initially, with cross-border payments coming later,as systems become established and links are made between CBDCs used by individual countries.
Nick Maynard, who authored the report for Juniper Research, explains: “While cross-border payments currently have high costs and slow transaction speeds, this area is not the focus of CBDC development. As CBDC adoption will be very country-specific, it will be incumbent on cross-border payment networks to link schemes together, allowing the wider payments industry to benefit from CBDCs.”
The research identified the lack of commercial product development around CBDCs as a key limiting factor for the current market, with few well-defined platforms for central banks to leverage. Juniper recommends prospective CBDC platform providers develop a full end-to-end solution – including wholesale capabilities, wallet provision and merchant acceptance – in order to enable the realisation of CBDCs’ potential.
Writing this week in InsurTech Digital, Risto Rossar, Founder and CEO of low-code provider Insly, explained what central bank digital currencies will mean for insurance and finance generally. A CBDC future could lead to faster, more efficient banking, Rossar said.