Central Banks Shift Focus to Instant Payment Systems Over CBDCs: Survey Insights

Declining Interest in Central Bank Digital Currencies (CBDCs)

According to a recent annual survey conducted by the Official Monetary and Financial Institutions Forum (OMFIF), there has been a notable drop in the popularity of Central Bank Digital Currencies (CBDCs) as an approach to improve cross-border payments. The 2024 survey illustrates a decline in support for CBDCs, with only 13% of respondents expressing confidence in them, down from 31% in 2023.

Shift Towards Instant Payment Systems

In stark contrast to the declining support for CBDCs, almost half (47%) of central bank governors endorse interconnected instant payment systems like the United States' FedNow service as a more viable solution for the future. This shift suggests a preference for existing frameworks that leverage modern technology to facilitate faster and more efficient transactions.

Stablecoins Remain Unpopular

The survey also reveals that stablecoins have garnered zero support for the second consecutive year. This lack of confidence from central bank governors reflects a broader skepticism regarding stablecoins' ability to enhance global financial infrastructure.

Geopolitical Factors and the US Dollar's Dominance

Interestingly, the survey highlights the continuous dominance of the US dollar in global markets, with only 11% of central banks indicating a decline in its usage. Geopolitical uncertainties have been a significant driver behind this trend, pushing many to regard the US dollar as a safe haven. The ongoing reliance on the dollar also sheds light on the challenges faced by the correspondent banking system.

Challenges in Correspondent Banking

Historically, correspondent banking has played a crucial role in facilitating international settlements. However, many view this system as increasingly outdated and expensive due to intricate Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. These burdens discourage innovation in the financial sector.

ISO 20022 Messaging Standard Delay

The delayed adoption of the ISO 20022 messaging standard may further drive down the use of traditional banking methods, prompting central banks to seek alternative approaches such as tokenization.

Exploring Tokenization

Encouragingly, over 40% of central banks in developed markets regard tokenization as a promising area of innovation. Plans to start research in this direction are anticipated within the next three to five years, signaling a potential shift in how digital transactions and financial operations could be handled in the future.

Conclusion

The findings from the OMFIF survey provide a crucial insight into the evolving landscape of digital currencies and payment systems. With declining interest in CBDCs and a growing inclination towards interconnected instant payment systems and tokenization, the world of finance is poised for significant changes in the coming years.