Banks May Face Competition From CBDCs, Study Suggests

The survey also shows central banks are uncertain whether distributed ledger technology should underpin a government-backed digital currency.

AccessTimeIconApr 12, 2022 at 1:00 p.m. UTC
Updated May 11, 2023 at 6:32 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global event for everything crypto, blockchain and Web3.Register Now

Central bank digital currencies (CBDCs) could put pressure on conventional banks, a survey of central banks found, and the jury is still out on whether central banks would use distributed ledger technology.

The report, published Tuesday by the Bank for International Settlements' Financial Stability Institute (FSI) and World Bank, plays into a debate about whether state-backed digital money could upend the financial system, potentially harming the economy.

Profit-driven banks may be more interested in seeking wealthy clients, rather than ensuring access to the financial system for the 1.7 billion people who don't have access, the FSI argued. By allowing new kinds of private payment providers into the market, “CBDCs could introduce more vibrancy and innovation, leading to more tailored and compelling value propositions for both payers and payees,” the report says.

In addition to taking deposits, commercial banks lend to homeowners and businesses. Some observers worry that supplanting that role entirely could harm the economy. But jurisdictions like the European Union already allow alternative providers to offer services that go beyond what the incumbents are prepared to do. The FSI cited the East Caribbean Central Bank, which gets non-bank institutions to check customers' identity before granting them a digital wallet.

Setting up a new bank is usually tough because regulators insist that a bank stock up large piles of capital to prevent failure. A payment provider that handles only state-backed assets wouldn’t have that risk and could be regulated more lightly, the FSI argued.

“The absence of liquidity and solvency issues for the intermediaries and the associated need for prudential regulation for the CBDC issuer implies that new types of intermediaries could be licensed,” offering extra competition, the report says.

Distributed technology?

The FSI is the analytical arm of the Basel, Switzerland-based BIS, a network of central banks, but the report doesn't necessarily represent the BIS or World Bank’s views.]

Meanwhile, central bankers don’t seem certain CBDCs will necessarily resemble today's cryptocurrencies.

Hyun Song Shin, BIS’ head of research, has already warned that without the pseudonymity offered by the likes of bitcoin (BTC), blockchain-based CBDCs could open up previously private financial transactions to the public gaze.

The FSI is open to the idea that other kinds of technology than distributed ledger technology (DLT) could be deployed for CBDCs, as DLT raises many problems, such as how to prove a transaction is legally final and how to wrest control from a CBDC owner who goes bankrupt. Another issue is how fast can nodes process transactions, the FSI said.

“For the central banks interviewed that are not considering a DLT-based infrastructure, decreased transaction throughput was the main reason given,” the report says. “It is unclear whether DLT offers unconditional advantages for a CBDC.”


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Jack Schickler

Jack Schickler was a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.