A Third of Central Banks Delay CBDC Plans Amid Regulatory and Economic Concerns

A significant number of central banks have delayed or cooled on plans to launch Central Bank Digital Currencies (CBDCs), citing regulatory hurdles, governance issues, and shifting economic priorities, according to a recent survey. The research, conducted by the Official Monetary and Financial Institutions Forum (OMFIF) and security tech firm Giesecke+Devrient Currency Technology, reveals that nearly a third of central banks are putting the brakes on their CBDC initiatives.

Regulatory and Economic Concerns at the Forefront

The survey, which included responses from 34 central banks and was published on February 11, 2024, found that while some central banks remain committed to their CBDC projects, around 31% have decided to delay their implementation. The primary reasons for the delay include concerns about regulatory and governance frameworks, along with unexpected economic challenges that have taken precedence over digital currency initiatives.

“Establishing appropriate legislation is often more reliant on political will than the central bank’s technical capacity or policy decisions,” the report notes. These concerns echo a growing skepticism around the potential for CBDCs to disrupt existing financial structures.

Political Roadblocks and Global Trends

One notable development in the global landscape was U.S. President Donald Trump’s executive order, signed on January 23, 2024, which prohibits the establishment, issuance, circulation, and use of a CBDC in the United States. While the crypto community largely welcomed the move, some industry executives raised concerns about the potential ripple effects on other nations exploring CBDC development.

In the OMFIF survey, a variety of reasons were cited for the delay in CBDC plans, ranging from inflation spikes and debt distress to the more technical challenges surrounding CBDC implementation. For instance, one respondent pointed to "debt distress" and economic instability as contributing factors to the postponement of their CBDC timeline. Other central banks noted that they would shift their focus to other payment system issues rather than continue with CBDC research and development.

Evolving Attitudes Toward CBDC Issuance

The OMFIF report also showed a sharp decline in the number of central banks inclined to issue a CBDC, dropping to just 18% in 2024, down from 38% in 2022. On the flip side, the number of banks less inclined to issue a CBDC increased by 15%, with no banks in the “less inclined” category in 2022.

Despite these trends, the survey revealed that most central banks still expect to issue a CBDC at some point. However, the shift in sentiment underscores the growing caution around the complexities and challenges surrounding the implementation of digital currencies.

Addressing Technical and Privacy Concerns

While technical challenges were previously cited as a major obstacle to CBDC adoption—such as issues with offline payments, privacy, and interoperability with existing systems—the OMFIF report suggests that these concerns are no longer as significant for most central banks. However, privacy remains a contentious issue, with one bank highlighting user privacy concerns as a reason for delaying its CBDC plans. The increasing collection, storage, and analysis of personal data have raised alarms, making privacy protection an ongoing challenge for central banks.

The Pros and Cons of CBDCs

The debate around CBDCs has been multifaceted. Proponents argue that they could improve payment efficiency, expand financial inclusion, and provide greater financial stability. The Human Rights Foundation, which launched a CBDC tracker in November 2023, has highlighted these potential benefits, particularly for underserved populations with limited access to traditional financial services.

However, there are significant drawbacks, particularly related to privacy concerns. Critics argue that CBDCs could lead to government overreach, infringe on individual privacy, and open new avenues for corruption. These concerns are part of the reason why some central banks are rethinking or delaying their plans to issue digital currencies.

Looking Ahead

As the regulatory landscape and economic conditions continue to evolve, the future of CBDCs remains uncertain. While a few central banks are pressing ahead with their CBDC projects, many others are taking a step back to reassess the implications and challenges. The survey results suggest that while the potential for CBDCs to revolutionize the global financial system is still present, regulatory clarity and addressing privacy concerns will be key to their successful implementation