Focus Area:
Analyse the need for a digital currency in the country.
Overview:
The Central Bank of Chile did an analysis on the CBDC considerations in the country in 2022. It evaluated the benefits and challenges associated with the issuance of retail Central Bank Digital Currencies. The analysis focused on studying the current state of payment systems, the need for digital currency, the market needs, benefits and associated risks with the CBDC and the design considerations. The central bank also did seminars and surveys to gather feedback on a potential CBDC.
Motivations:
- A CBDC could promote innovation in payments space and improve its efficiency. Innovations in the field of payments will undoubtedly contribute to the well-being of the population.
- The gaining popularity of virtual currencies is one of the threat to the central bank because they compete with cash and deposits. Introduction of CBDC could reduce the risk of mass use of money denominated in other units of account.
- Financial inclusion — Being able to pay and receive payments is essential for everyone regardless of income, immigration status, geographic location, etc. For this reason, it is the duty of the State to ensure a generally accepted and low-cost means of payment.
Financial institutions involved:
Central Bank of Chile
Design considerations:
- The CBDC unit of account would be the Chilean peso and would be convertible at par value with coins and bills. A CBDC would be a liability of the central bank that issues it, so it is responsible for maintaining its value.
- For a CBDC to be adopted by people for their daily transactions, it must be attractive. So, it should allow firm and irrevocable instant payments to be made, with low cost for users. Likewise, it is necessary that the technological requirements, both in terms of devices and usability, are not an entry barrier for people.
- Different banks and PSPs should be able to interoperate with each other and perform CBDC transfers in real time.
- A two-tier structure is being considered appropriate for the market. It allows the central bank and the private sector to continue to do what they do best.
- CBDC should reduce the risks of disintermediation and financial stability, for which it is likely that it will be necessary to consider limits to the holding of CBDC.
- CBDC must ensure the privacy of personal data, but at the same time allow the authority to trace transactions later. This would make it possible to maintain an adequate level of prevention of money laundering and terrorist financing.
- A CBDC should work both online and offline.
A possible CBDC infrastructure might look something like shown in the figure below.
Technical Solution:
What technological solution would be considered to implement the CBDC is not decided yet.
Conclusion:
It is still early to make a final decision regarding its issuance, and eventually, its specific design. It is necessary to evaluate the technical feasibility of achieving a CBDC with the desired standards and characteristics. Also, Cross-border payment needs are to be addressed considering how the other countries are designing their CBDC.
The Bank will be holding a series of seminars, presentations and meetings with different counterparts.
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