The currency of the future: where are CBDCs headed? 

The thoughts of Jens Holeczek, Head of the Digital Payments Unit, National Association of German Cooperative Banks (BVR)


Published: 20 December 2022

By May Moorwood

Digital Content Producer

In the post-COVID world of cashless spending and fast-paced digitalisation, electronic money is becoming increasingly important. According to the European Central Bank (ECB), 2021 saw cashless payments increase by 12.5% in the euro area.¹ And so, the question arises: what can we expect from the bank note of the future? For many, the creation of a Central Bank Digital Currency (CBDC) is the answer. A survey in 2021 by the Bank for International Settlements (BIS) found that 86% of central banks are currently researching the possibility of a CBDC and over half are experimenting with the technology.² But what does a CBDC actually entail, and can we ever expect digital currencies to become ‘mainstream’? MoneyLIVE spoke to Jens Holeczek, Head of the Digital Payments Unit at the National Association of German Cooperative Banks (BVR) to examine the current state of CBDCs and how we might see this develop in the form of a digital Euro. 


Defining digital currency: what do we mean by CBDC? 

If by digital we simply mean money which can be accessed digitally, we already have this with the central bank money account… What digital means for a CBDC – in my definitionis future proof.

The real question, says Jens Holeczek, is what is a CBDC? They may be on the cards for a lot of banks, but in reality, there are many possible meanings of digital currency. There are two factors to consider when defining a CBDC: firstly (“and this is the only fixed one”) a central bank must have liability for the currency. Secondly, are the implications of digital. “If by digital we simply mean money which can be accessed digitally, we already have this with the central bank money account. But that’s restricted, with good reason, to banks only. What digital means for a CBDC – in my definitionis future proof”, says Jens. In explanation, he offered the instance of a blackout or natural crisis – a digital currency needs to be just as functional as cash and be retrievable even when users are offline or off-grid.  

After understanding this, there are two kinds of CBDC that we can talk about: wholesale and retail. According to Jens, this distinction is often missed in discussions around digital currency. Wholesale CBDCs (used for transactions between banks and financial institutions), are much further ahead. Take the Bank of Canada’s Project Jasper. In 2017 it successfully experimented with a wholesale CBDC and two years later partnered with The Monetary Authority of Singapore to demonstrate the possibility of eliminating settlement risks in cross-border, cross-currency transactions.³ However, retail CDBCs, used by individuals to pay businesses, shops or each other, are not yet a reality. “Looking to China, the eYuan is digital, of course, but based on a central database, so more or less just a central “account” at the bank of China. And, of course, the reasons to distribute are not related to stability or future of the currency”. For Jens, a CBDC issued by the ECB for customers, must first consider the problems that a digital currency might face: digitisation of cash, still working regardless of online connection, different devices or formfactors for financial and digital inclusion. It must also address issues of financial crime and money laundering. A retail CBDC – because of its digitality – could potentially be used to limit crime by implementing a hard upper limit in the cash itself and in the wallets. 


Long-term thinking: what can we expect from CBDCs? 

When asked what he saw for the future of CBDCs, Jens answered that for wholesale digital currencies, the advantages lie in cross-border transactions for commercial bank money. In March 2020 Banque de France launched their wholesale CBDC experimentation programme. The programme builds on the investigation phase for a retail CBDC (digital euro) launched in July 2021 by the ECB. Jens suggests that “the ECB should take France’s tests and run with them, as they provide a great starting point for the wholesale CBDC. Smarter, cheaper and faster cross-border payments, he says, would offer huge advantages for G7 or G20 structures and all that is needed now is a willingness from the ECB to fully implement this kind of CBDC. 

On the other hand, a lot more must be considered before a retail CBDC becomes reality. For Jens, their success depends on “clear goals” and a sense of direction from the ECB, which he says currently isn’t apparent. In order to establish a primary goal, we need to know the problems that a digital currency would aim to solve, and what the priorities of central banks regarding these problems are. One example would be using a CBDC as a solution to European real time payments, but at the moment digital currencies are also under consideration for high volume transactions, which Jens admits would disrupt the payments market far less. Another instance is if sovereignty were the key objective. In this case, a digital euro should only be the interoperable layer to strengthen the different European solutions for payments and to enable an easier compatibility. In terms of time scale, the ECB are expected to make some sort of decision in the third financial quarter of next year, and it will likely take three years of development at least for retail CBDCs to become reality. Could 2026 be the year? 


Words of warning: what needs to change? 

Meanwhile, the economic problems facing a retail CBDC are huge. Jens emphasises that banks across the EU, and the needs of citizens and businesses are so vastly different that a one-size-fits-all approach to digital currencies would be a huge mistake. If taken, he says, a digital euro could destabilise entire economies. When considering a digital euro, we risk limiting our investigation to solely the middle of the banking industry and how the economy and society would be affected as a whole. It is crucial, however, for analysts to take the entire financial sector into consideration, assessing the effect on individual banks and the spread of impact, especially those at the edges with the highest and lowest likelihood of impact. There needs to be an incredible amount of detail rather than a holistic overview to evaluate clearly the impact, the chances and the risks.This also goes for differences between nations. Germany for example, has a huge number of cooperative banks compared to other countries in Europe. Their economy may end up facing far greater impacts because of their focus on savings and use of small deposits to finance loans. Ultimately, says Jens, the vast industry differences between countries and within countries is the greatest problem facing CBDCs impact.  

A one-size-fits-all approach to digital currencies would be a huge mistake. If taken, he says, a digital euro could destabilise entire economies.

Jens ended on some advice for the industry: CBDCs are not the only form of money that needs to become future proof. The whole money system needs to be included. The digital euro should aim for interoperability and digitisation with a clear USP for citizens as a raw material for private market solutions. A whole-sale CBDC, including interoperability in a global environment and higher efficiency for Europe, should take priority”. Ultimately the most crucial factor for success is to really work together: ECB, banks and the industry should strive to find a solution, starting with low risk, high impact ideas – “work with what you know well”. And what Jens established is that “what we know” is currently a wholesale CBDC and the work on a commercial bank money token. We should not”, he says be changing a money system with a one size fits all solution. 


Do you have further thoughts on CBDCs and digital currencies? You can reach out via LinkedIn or via email – we are always excited to hear your thoughts! 







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