The value of transactions made using Central Bank Digital Currencies is expected to surpass US$200 billion by the end of this decade, according to a new study from Juniper Research. The research predicts that the value of payments made using CBDCs will soar to US$213 billion a year by 2030, up from just US$100 million this year. If this forecast comes to fruition, it would represent a staggering growth rate of more than 260,000%.
The report from Juniper Research reflects the nascent stage of the CBDC sector, which is currently limited to pilot projects. However, it also highlights the immense potential for CBDCs to become a mainstream method of payment for goods and services. CBDCs are digital currencies issued by central banks and are pegged to the country's fiat currency. They come with some inherent rules governing how they can be used, such as an expiry date or restrictions on certain services or goods. In that respect, they are 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 are seen as more trustworthy than decentralized finance (DeFi) options like Bitcoin and Ethereum.
According to the Bank for International Settlements, 60% of central banks are currently experimenting with CBDCs, which means they could be launched in the near future. However, there are concerns around security, as CBDCs are digital currencies with all transactions recorded on a ledger, meaning anyone with access to that ledger has access to your transactions. This raises the prospect that CBDCs could be used by unscrupulous governments for surveillance purposes.
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 initially be closely targeted to domestic payment challenges, 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 that prospective CBDC platform providers develop a full end-to-end solution, including wholesale capabilities, wallet provision, and merchant acceptance, in order to enable the realization 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.