How Should Central Banks Explore Central Bank Digital Currency? A Dynamic Decision-Making Framework (IMF Fintech)

Summary

• Central banks must develop a long-term vision for monetary and payment systems spanning a time horizon of at least 5 to 10 years as economic digitalization accelerates.p.6
• The 5P methodology structures CBDC projects into 5 sequential phases: preparations, proof of concepts, prototype, pilot, and production.p.7
• China's e-CNY pilot trial expanded from an initial 4 cities and Winter Olympics locations to cover 17 provinces in total.p.35
• Only 3 jurisdictions globally (The Bahamas, Jamaica, and Nigeria) have formally entered the production phase for retail CBDC.p.36
• The Central Bank of the Bahamas officially launched the Sand Dollar CBDC in October 2020 following a 10-month pilot program.p.37

Key insights

1. Exploring retail CBDC requires managing high strategic uncertainty and balancing implementation risks against the risk of central banks becoming unprepared for digitalized economies.p.6
2. CBDC project governance should establish predefined go/no go criteria at each phase transition point to decide whether to iterate, proceed, or halt the project.p.9
3. Foundational capacity assessments must examine technical infrastructure, institutional staffing, legal basis, and cybersecurity posture prior to issuing CBDC.p.13
4. Maintaining cybersecurity readiness requires continuous architecture risk analysis, threat modeling, and dedicated operational resilience protocols.p.15
5. Two-tier CBDC distribution models delegate customer onboarding and operational services to private payment service providers while preserving central bank oversight.p.19
6. Complete payment anonymity conflicts with international AML/CFT standards, leading central banks to adopt privacy threshold models for low-value transactions.p.21
7. Pilot phases evaluate operational performance and real-world adoption using quantifiable key performance indicators before full production launch.p.32