Future

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United

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Despite the steady increase in research activity, central bankers are showing rapidly decreasing enthusiasm for central bank digital currency (CBDC), the Official Monetary and Financial Institutions Forum (OMFIF) think tank has found in its annual Future of Payments survey.
<h2 id="cbdcs-only-look-good-to-some-central-banks">CBDCs only look good to some central banks</h2>
Interlinking instant payment systems, such as the <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/federal-reserve-confirms-july-launch-for-fednow-instant-payment-service" rel="noopener noreferrer nofollow" target="null" text="null" title="null">comparatively new US FedNow</a>, is by far the most popular solution among central banks for improving cross-border payments. Almost half (47%) of respondents <a data-ct-non-breakable="null" href="https://www.omfif.org/future-of-payments-2024/" rel="noopener noreferrer nofollow" target="null" text="null" title="null">chose</a> this option, which is only a tiny increment above last year’s results. Stablecoins received a 0% vote, just as last year.
CBDCs fell in this ranking from 31% in 2023 to 13% in 2024. This may reflect a reaction to greater interest in CBDC in certain central banks.
When the Bank for International Settlements (BIS) <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/bis-exits-project-mbridge-amid-sanctions-concerns" rel="noopener noreferrer nofollow" target="null" text="null" title="null">pulled out of Project mBridge</a> in October, the move was widely interpreted as a reaction to the threat it poses to international sanctions because of the dominance in the project of China and other countries not closely aligned with the West.
The BIS denied that its decision on Project mBridge was political. The US dollar will continue to be the preferred settlement currency, the report concluded. Only 11% of central banks said they were reducing their use of the dollar:
<blockquote>
 “For now, many players searching for a safe haven in the face of geopolitical tensions will increase holdings of the dollar, reinforcing the dominance of incumbent payments systems.”
</blockquote>
<figure><img alt="Central banks favor legacy instant payment systems over CBDCs" src="https://s3.cointelegraph.com/uploads/2024-11/01937948-991d-74e8-bf49-e5cd167b6e75" title="">
 <figcaption style="text-align: center;">
 Source: <a data-ct-non-breakable="null" href="https://x.com/OMFIFDMI/status/1859297542732665332" rel="noopener noreferrer nofollow" target="_blank" text="null" title="https://x.com/OMFIFDMI/status/1859297542732665332">Digital Money Institute </a>
 </figcaption>
</figure>
Related:&nbsp;<a data-ct-non-breakable="null" href="https://cointelegraph.com/news/some-central-banks-have-dropped-out-of-the-digital-currency-race" rel="noopener noreferrer nofollow" target="null" text="null" title="null">Some central banks have dropped out of the digital currency race</a>
<h2 id="tokenization-and-tradfi-are-looking-better">Tokenization and TradFi are looking better</h2>
The correspondent banking system, in which large international banks provide international settlement services for small local banks, <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/the-caribbean-is-pioneering-cbdcs-with-mixed-results-amid-banking-difficulties" rel="noopener noreferrer nofollow" target="null" text="null" title="null">has been in decline</a> for years. The process is becoming more expensive as Know Your Customer/Anti-Money Laundering measures become more complex.
Its decline will only speed up if the new ISO 20022 messaging standard is not implemented on schedule. The survey finds that a significant lag in the new standard’s adoption is likely.
<figure><img alt="Central banks favor legacy instant payment systems over CBDCs" src="https://s3.cointelegraph.com/uploads/2024-11/0193794a-5801-78da-904a-754e10545a6b" title="">
 <figcaption style="text-align: center;">
 Correspondent banking activity over since 2011. Source: <a data-ct-non-breakable="null" href="https://www.omfif.org/future-of-payments-2024/" rel="noopener noreferrer nofollow" target="_blank" text="null" title="https://www.omfif.org/future-of-payments-2024/">OMFIF</a>
 </figcaption>
</figure>
That may explain the lively interest among central banks in tokenization, which could streamline compliance checks. Over 40% of central banks in developed markets “think it is promising and expect to begin work on it in the next three to five years.”
The BIS’s Project Agora, in which the central banks of France, Japan, South Korea, Mexico, Switzerland and the United Kingdom, along with the United States Federal Reserve Banks are participating, is one of many projects <a data-ct-non-breakable="null" href="https://cointelegraph.com/news/bis-project-agora-tokenized-deposits-cdc" rel="noopener noreferrer nofollow" target="null" text="null" title="null">blazing the trail toward</a> tokenized transfers. It crucially depends on the use of wholesale CBDCs.
Nonetheless, given the preference for legacy instant payment systems, it seems clear that cross-border payments will remain off the blockchain. The BIS is prepared for that option too. Its Project Nexus, which also depends on the ISO 20022 standard, is <a data-ct-non-breakable="null" href="https://www.bis.org/about/bisih/topics/fmis/nexus.htm" rel="noopener noreferrer nofollow" target="null" text="null" title="null">developing</a> a common platform for instant payment systems.
Magazine:&nbsp;<a data-ct-non-breakable="null" href="https://cointelegraph.com/magazine/digital-yuan-adoption-payments-regulation/" rel="noopener noreferrer nofollow" target="null" text="null" title="https://cointelegraph.com/magazine/digital-yuan-adoption-payments-regulation/">How the digital yuan could change the world… for better or worse</a>
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Central banks favor legacy instant payment systems over CBDCs

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