Exploring the Growth and Challenges of Retail Central Bank Digital Currencies (CBDCs)

and deploy approach allows central banks to gather valuable data and feedback from real users, enabling them to make informed decisions about the design and implementation of a broader retail CBDC.

This approach has several advantages. Firstly, it allows central banks to address specific pain points or inefficiencies in the existing payment system. By targeting a narrow use case, such as cross-border remittances or micropayments, central banks can assess the feasibility and effectiveness of a retail CBDC in addressing these specific challenges.

Secondly, the test and deploy approach enables central banks to iterate and improve the design of the CBDC based on user feedback. By involving real end users in the pilot phase, central banks can gather insights into user preferences, behavior, and concerns. This feedback can then be used to refine the CBDC’s features, user interface, and security measures, ensuring that it meets the needs and expectations of the public.

Furthermore, the test and deploy approach allows central banks to manage the risks associated with a retail CBDC more effectively. By starting with a narrow use case, central banks can limit the potential impact of any technical or operational issues that may arise. This mitigates the risk of reputational damage to the central bank and government, as well as the threat to existing payment service providers and deposit-taking banks.

Importantly, the test and deploy approach also helps central banks avoid the pitfall of creating a retail CBDC that offers nothing new or compelling to end users. By focusing on specific use cases, central banks can explore innovative features and functionalities that differentiate the CBDC from existing payment options. This could include enhanced privacy features, loyalty programs, or integration with other digital services.

While the go-slow approach may be appropriate for large-scale, general-purpose retail CBDCs, the test and deploy approach offers a more agile and targeted strategy for smaller-scale initiatives. By starting small and gradually expanding the scope and scale of the CBDC, central banks can minimize risks, gather valuable insights, and build public trust in the new digital currency.

In conclusion, the growth in the number of central banks exploring retail CBDCs is remarkable. While the go-slow approach may be suitable for large-scale initiatives, a test and deploy approach focused on narrow use cases offers several advantages. By involving real end users, gathering feedback, and iterating through the different phases, central banks can ensure that the retail CBDC meets the needs and expectations of the public while managing risks effectively.