CBDC - in a whirlpool of discussion

ENThe topic of central bank digital currency (hereinafter – CBDC) has recently gained significant attention from policy makers and academics. A wide range of CBDC setups are discussed, from universally accessible central bank accounts or digital tokens to less extreme suggestions of only partially broadening central bank balance sheet access by providing CBDC to wholesale institutes or getting the private sector to mediate the process by providing synthetic CBDC. We see CBDC as: 1) a means to meet the global citizen’s need for a safe, trustworthy, and cost-efficient instrument for cross-border payments. As of now, there is no perfect technological solution yet; however, advancements in technology seem to be able to serve this purpose; the idea of CBDC has great potential while – crucially – joint effort is needed to arrive at the best-suited form of CBDC, the principle idea of which could be, e.g., multicurrency CBDC. 2) a way to address a safe medium of payments shortage. In particular, locally addressing this issue requires the least deviation from the current financial system set-up. 3) in no way being a universal one-size-fits-all solution. Different CBDC design types can have different outcomes. Therefore, when considering CBDC issuance at a national level, we should first of all prioritise the issue that needs to be tackled based on the country specifics and then choose the best-suited implementation method. Still, this is only true at the individual jurisdiction level. For CBDC to be a global solution, joint effort and agreement is needed.From the monetary policy and financial stability side, no unambiguous assessment can be given yet to the balance of CBDC benefits and costs. Considerations that CBDC introduction could potentially induce higher instability of bank funding and a larger role for central banks in financial intermediation are expressed. However, there are design choices that could help mitigate such unintended side effects. CBDC is an idea with the potential to change some of the conventional financial system realities and deserves the thorough consideration that it is currently given. Nonetheless, the focus should be on the ultimate goal – a global solution for a modern-day citizen of the world. With proper design, some of the CBDC-induced changes that are currently seen as frightening side effects would merely be a change in the status-quo – a natural part of progress. In this context, the Bank of Lithuania is tackling the issue primarily from the practical perspective. First, experience gained via broadening access to the retail payment system to non-bank institutions provides valuable insights on a what if scenario in case of synthetic CBDC. Second, the application of distributed ledger technology (hereinafter – DLT) to issue a digital numismatic coin provides technological hands on experience and know-how.