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Blockchain Research Focus: Do Central Bank Digital Currencies have a future?


Imagine living in a world with cashless payments. When starting a new job, I will scan my digital currency address instead of a bank account for my employer to deposit instantly my paycheck in e-money. I will also scan the same digital currency address to purchase my morning cup of coffee. And I will authorise the purchase with my private key, securely saved in my digital wallet app.  These cashless payments will be done with Central Bank Digital Currency (CBDC) or currency approved by a central bank. 

Following the money flower taxonomy in reference [1], a CBDC is defined by 4 properties:

  • The CBDC is issued and controlled by the Central Bank, in contrast to the privately issued cryptocurrencies such as Facebook Libra and JP Morgan JPM coin.
  • The CBDC is a digital asset in addition to the current physical cash (i.e. banknotes).
  • The CBDC could be accessed widely by everyone for daily purchases or could be restricted to certain agents or jurisdictions, for example wholesale transactions.
  • The CBDC could be offered in two technology forms, “value-based” and “account-based”. The “value-based” form is  similar to cash today in protecting anonymity and enabling peer-to-peer transactions. The “account-based” form is similar to bank deposits. 

The CBDC is not in an imaginary world.

On December 9, 2019, a pilot project of China’s central bank digital currency was reported in the Caijing Magazine [7]. The pilot will start in the city of Shenzhen, then the city of Suzhou and other places will follow. It will be conducted by the state-owned and commercial banks and will reach out of the bank system to use real case scenarios in  transportation, education and medical treatment. China will be testing a national digital currency that is designed to be a digital form of the existing physical banknotes, the yean. The worldwide spread of the coronavirus at the beginning of 2020 stalled China’s digital currency plans. Nevertheless, as massive cash is being guaranteed to stop the virus transmission, the efficiency of the digital currency becomes even more apparent.    

On February 20, 2020, the Riksbank (the Central Bank of Sweden) announced a year long pilot project to test a technical solution for deploying e-Krona, a future central bank digital currency in Sweden [2]. This pilot is the most recent initiative of the Riskbank’s e-Krona project to research the impact and feasibility of issuing central bank digital currency in Sweden. 

The most recent report [3] by the Riskbank’s e-Krona project from October 2018, published the research on the key questions below. 

  • There are two types of e-krona that would be offered as CBDC. “Value-based” e-krona is like cash and “Account-based” e-crona is like a deposit. 
  • The e-Krona is going to affect the financial system and monetary policy. This will be correlated to the size of the demand for the e-Krona. The research suggests that the demand for e-Krona could be controlled by interest rates, therefore avoiding negative effects.
  • Corda’s Digital Ledger Technology with a private network has been selected as the  implementation technology.

Sweden’s Riskbank e-Krona project is only one of many government initiatives worldwide.  In February, 2019, a BIS paper[4] published a survey of central banks to which 63 banks responded covering 80% of the world representation. The survey reveals that 70% of the respondents are already taking initial steps according to their domestic and international relation conditions. The paper presents a review of the pilot projects in Sweden and Uruguay and their motivations to develop Central Bank Digital Currencies. The authors analyze the differences between public and private implementation which is  followed by the demonstration of centralization level.

The digital currencies have been central to the innovation initiatives of Central Banks around the world for the past several years. Posted in June 2017, a Bank of Canada Staff discussion paper[4] proposes a framework for assessing why Central banks should consider issuing a digital currency and how to implement it to improve the efficiency of the retail payment system. It assesses how the adoption of new digital means of payment could bring significant benefits to customers and society, but the risks must be tackled with innovative approaches and heightened collaboration across borders and sector.

The digital currencies, whether issued by central banks or private institutions, hold a promise to address open social and economic issues. They will allow for financial inclusion for the low income families and efficient and instantaneous payment systems for global and peer to peer transactions. Nevertheless, having digital currencies issued by the Central Banks themselves will have a strong impact in three major areas. 

A CBDC, that is designed and controlled by the Central Bank “as a trusted public institution with the public interests as top priority”[6], will address privacy and personal freedoms rather than commercial benefits. 

A CBDC, that is backed by the Central Bank, will provide the same stability as it provides for the Central Bank paper money (i.e. banknotes). Therefore, it will be the enabler of a trusted cashless payment system.  

A CBDC, when issued to the general user directly, will be an innovation in payment system itself. The current model of payment services being offered by other financial institutions will be challenged and may be disrupted. 


The Blockchain Research Focus is bringing into the spotlight academic research on blockchain technologies, including social impact and ethics. Curated by the #BlockchainResearch Taskforce at #TheBlockchainHub [ ]


[1] Central bank digital currencies [], BIS paper by the Committee on Payments and Market Infrastructures, March 2018

[2] Technical solution for the e-krona pilot [–cash/e-krona/technical-solution-for-the-e-krona-pilot/], February 20,2020 

[3] The Riksbank’s e-krona project, Report 2 [ ], October 2018

[4] Proceeding with Caution – A Survey on Central Bank Digital Currency by Christian Barontini, Henry Holden  [ ], February 2019

[5] Central Bank Digital Currencies: A Framework for Assessing Why and How by Ben SC Fung, Hanna Halaburda [ ], June 2017
[6] Bank of Canada lays groundwork for digital currency [], February 25, 2020

[7] by By Cai Wei, editor of Caijing Magazine, Yuan Man, December 9, 2019


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