As country experiences indicate, Central Bank Digital Currency (CBDC) adoption could face hurdles, including the classic chicken-and-egg problem wherein adoption by consumers is dependent on the participation of merchants and vice versa.

CBDC adoption requires a strategic approach adapted to country circumstances based on four elements—regulation, education/communication, design, and incentives. How to leverage CBDC data while preserving privacy? CBDC may allow for a “digital trail” of data to be collected and stored. CBDC data may have economic value and could help central banks achieve policy objectives. However, CBDC data use could pose risks to privacy, which in turn can undermine trust in central bank money.

Central banks need to strike a balance between CBDC data use and privacy protection depending on norms, legal and regulatory frameworks, and preferences. CBDC offers an opportunity to improve the trade-off between data use and privacy protection as compared to private digital payment systems, including through robust institutional arrangements and technological solutions.

CBDC can be designed to cater to the privacy needs of different users. Will CBDC interfere with monetary policy operations? When CBDC is issued and adopted, it will substitute for other forms of money and change reserve balances in the banking system, which in turn may influence short-term interest rates. CBDC may affect central banks’ ability to forecast liquidity, draw market rates away from the policy target, and complicate banks’ liquidity management. CBDC may therefore affect how central banks conduct monetary policy operations.

However, effects can be attenuated by adapting monetary operations—engaging in fine-tuning operations and providing more liquidity to the banking sector. CBDC design can also be altered by imposing criteria on access, as well as holding or transaction sizes. How to design CBDC to help improve cross-border payments? When designing and implementing CBDC systems, it is beneficial to factor in cross-border implications from the start. By doing so, central banks can diminish risks of having to redesign or adjust their domestic CBDC system at a later stage. CBDC could help overcome frictions in cross border payments if they are designed bearing five interrelated elements in mind: access, communication, currency conversion, compliance, and settlement.

CBDC is still an emergent field. Central banks need to approach CBDC exploration carefully and methodically. The IMF’s CBDC virtual Handbook (Handbook) published in November, 2024 aims to guide and support policymakers in their CBDC explorations. It is a “living” document reflecting evolving experiences, findings, and policy views. It covers the objectives of CBDC, foundational requirements, design considerations, and macro-financial implications. They include the following topics: (i) positioning CBDC in the payments landscape; (ii) cyber resilience of the CBDC ecosystem; (iii) strategies for CBDC adoption; (iv) CBDC data use and privacy protection; (v) implications of CBDC for monetary operations; and (vi) cross-border payments with retail CBDC. The Government of Japan is a major partner and donor and has funded this second wave of Handbook chapters. 6. This paper summarizes the findings of the second wave of the Handbook chapters. As before, findings are preliminary and may be updated in the future as new knowledge and experience emerge.

The global interest in CBDC remains strong, and exploration continues around the world. The Bank for International Settlements’ (BIS) most recent CBDC survey shows that the proportion of the 86 responding central banks that are exploring CBDC has risen to 94 percent. The survey indicates that up to fifteen CBDCs will likely have been issued by 2030 (BIS 2024a). The pace, motivations, and scale of CBDC exploration remain jurisdiction specific. Over the course of 2023, there was an uptick in experiments and pilots with wholesale CBDC (wCBDC). 8. Some central banks in large economies are devoting considerable resources to retail CBDC (rCBDC) exploration.

The European Central Bank (ECB) is moving forward with the digital euro project. It moved from the initial phase into the preparation phase in November 2023. This preparation phase aims to lay the foundation of a potential future digital euro, by finalizing its rulebook and selecting providers that could help develop a technical platform. A first draft of the rulebook and a first call for providers were presented in January 2024 (ECB 2024)—the ECB has earmarked significant funds to work with the private sector to develop a digital euro. The next phase involving an actual development and rollout of the digital euro could start in November 2025 at the earliest. In the UK, the Bank of England (BoE) together with His Majesty’s Treasury continue to explore a potential digital pound. The project is currently in the design phase, in which technological and policy requirements for a potential digital pound are being investigated. 9. Several central banks are fine-tuning their rCBDC pilots or starting new ones.

The Chinese e-CNY has been circulating in seventeen Chinese provinces in pilot form for several years. Government agencies and, increasingly, corporations are now using the e-CNY for payroll purposes which helped increase the e-CNY transactions. The e-CNY has integrated the current QR code system, which simplifies its use in stores. The D-Cash pilot, run for several years by the Eastern Caribbean Central Bank (ECCB), was discontinued in January 2024. The ECCB is now preparing to launch a second pilot, dubbed D-Cash 2.0 which aims to be more advanced and user friendly (ECCB 2024). In India, the rCBDC pilot currently has a user base of around five million and has integrated the standard QR code system for interoperability with other payments methods (RBI 2024a). Currently, work is ongoing to add functionalities to the pilot that are deemed important. Multiple ways to achieve offline capacity to enable payments in rural and far-off areas will be tested (RBI 2024b).

The Bank of Korea (BOK) explores both rCBDC and wCBDC in collaboration with other government authorities. Together, these authorities are currently developing a pilot to allow the public to test CBDC (BOK 2024). No new rCBDCs have been officially launched since three central banks launched CBDC in 2023. The three CBDCs that are currently officially issued—the Sand Dollar in The Bahamas, the eNaira in Nigeria, and Jam-Dex in Jamaica—are used for payments in their respective economies, albeit with a low level of adoption. This initial slow uptake is not surprising, as the adoption rate of new technologies and innovations tends to be slow at first.

Reasons contributing to the initial slow uptake include insufficient public education, lack of merchant participation, and lack of engagement with and incentives for intermediaries. Most central banks are carefully assessing lessons from peer experiences, noting the importance of conducting user education campaigns, engaging stakeholders early, and setting appropriate regulatory frameworks. For example, the Central Bank of Bahamas is reportedly considering mandatory participation by commercial banks to offer access to the Sand Dollar.

The BIS survey shows that advanced economies believe that the likelihood of issuing a wCBDC is now higher than that of a rCBDC within the next six years. Exploration of wCBDC is motivated by a number of potential use cases, such as the need to provide an efficient settlement asset for tokenized assets, safe and efficient payments between non-bank financial institutions, and cross border payments. Tokenization of money and assets has become a notable development with active participation by global banks and financial market infrastructures. For example, as part of a pilot known as Project Helvetia III, the Swiss National Bank (SNB) has issued tokenized Swiss franc wholesale CBDC. The pilot is unique in making wCBDC available for settling commercial transactions on the same third party platform run by the SIX Digital Exchange where tokenized assets are held. Other examples of active wCBDC exploration in the context of asset tokenization include projects run by Brazil, Hong Kong SAR, and Singapore.

Interest in both rCBDC and wCBDC remains strong in EMDEs. For instance, Kazakhstan has already taken a decision to issue a rCBDC, and the Digital Tenge (DT) was launched in ‘pilot mode’ in November 2023 (National Bank of Kazakhstan 2023). The central bank of Nepal (Nepal Rastra Bank) envisions a phased pilot by 2026 (Nepal Rastra Bank 2024). The central bank of Honduras (Banco Central de Honduras, BCH) published a report on its CBDC exploration in 2023, discussing the potential role of CBDCs for financial inclusion and improved remittances (BCH 2023). The central bank of Philippines (Bangko Sentral ng Pilipinas) has selected the underlying technology of and is conducting a proof-of concept on a wCBDC, Project Agila (Bangko Sentral ng Pilipinas 2023). Likewise, the South African Reserve Bank is embarking on a series of trials on wCBDC in the Project Khoka2x (South African Reserve Bank 2024). Many other projects are also ongoing globally, at different levels of intensity.

International organizations are also supporting global CBDC exploration. They are engaging in analytical work, technical experimentation, capacity development and facilitating discussion and information-sharing between countries. For instance, the Bank for International Settlements Innovation Hub (BISIH) conducts a wide range of technical explorations in collaboration with national central banks. Recent developments include a cross-border wCBDC project mBridge which has now reached the minimum viable product stage—it is now able to support basic functions for real value transactions. Consequently, mBridge is now broadening its scope and inviting new participants (BIS 2024b). Project Rialto was announced in July 2024 to explore how to improve instant cross-border payments using wCBDC settlement (BIS 2024c). Project Aurum 2.0, Project Hertha and Project Tourbillon demonstrate central banks’ efforts to explore and scale up privacy enhancing technologies (PETs) for privacy protection (BIS 2024d).

The World Bank, like the IMF, continues to provide analytical support and technical assistance for member countries.2 The World Bank also actively engages in technical experimentation, for instance recently partnering with the SNB and SIX Digital Exchange to further scale efforts in the use of Distributed Ledger Technology (DLT) and wCBDC in capital markets (World Bank Group 2024).