PwC Global CBDC Index and Stablecoin Overview 2022

Given the fall in public sector cash use and the rise in private sector cryptoassets, our new report gives a timely update on the progress and development of CBDCs and stablecoins.

The PwC Global CBDC Index is designed to measure central banks’ level of maturity in deploying their own digital currency. The inclusion of the Stablecoin Overview was considered a sensible evolution in the analysis, given the two frameworks co-exist. One framework is fully state backed whereas the other is only partly, and only to the extent that the underlying deposit taker is regulated and protected by the state through regulation and deposit protection schemes. 

CBDCs are measured via a synthetic index capturing the central banks’ progress and stance on CBDC development, in both a retail and wholesale context. For the stablecoins, we have deliberately chosen not to rank, instead providing an overview of the criteria by which they can be compared, depending on the use case which may be specific to the reader.

CBDCs in 2022

More than 80% of central banks are considering launching a CBDC or have already done so. Legal digital-tender is in use in The Bahamas and Nigeria with Jamaica and the Eastern Caribbean expected to follow soon. The People’s Bank of China is conducting large-scale public trials in selected cities and the e-CNY was one of only three payment methods accepted at the venue during the 2022 Winter Olympics. In February 2022, India’s Finance Minister pledged to have a virtual version of the rupee later this year and the following month, the Philippines announced its own pilot implementation of a CBDC. The US Administration placed 'the highest urgency' on research and development efforts into the potential design and deployment of a US CBDC.

In the UK, the Economic Affairs Committee of the House of Lords (Committee) declared CBDCs ‘a solution in search of a problem’. The Committee continued to state that they have yet to hear a convincing case for why the UK needs a retail CBDC, arguing that while a CBDC may provide some advantages on speed of settlement as well as cheaper and faster cross-border payments, it would present significant challenges for financial stability and the protection of privacy.

The UK’s position should be contrasted to that of the European Commission which plans to propose a bill for a digital euro in early 2023, serving as the legal foundation for the virtual version of a euro banknote or coin.

The role for stablecoins

Set against the political factors driving central bank digital currencies, privately issued stablecoins offer a quasi, semi state-backed option and provide much of the same utility, without the possibly constraining aspects of government originated issuance. In its simplest sense, stablecoins are privately issued cryptoassets which aim to minimise volatility by pegging to something which is considered to have a stable value (for instance, a fiat currency or precious metals).

Stability in the price of the stablecoin is a function of the transparency of the coin provider’s entire operations, including the custodian holding the relevant fiat deposits. For a fiat-backed stablecoin, it is paramount to demonstrate that the stablecoin is appropriately collateralised on a one-to-one basis, ideally continuously. At any given time, the balance of fiat currency held in deposit must be equal to (or greater than) the number of stable coins in circulation. This process also needs to account for the minting, redemption and burning of tokens against the underlying deposits. Further confidence in the operation of the stablecoin can be provided by subjecting the stablecoin operator to an external audit process, to validate that the stablecoins are continuously backed. The results of the audit should then be made available publicly.