Environmental Implications of a Central Bank Digital Currency (CBDC)
Two-thirds of central banks in the East Asia and Pacific (EAP) region have started researching or testing the implementation of a Central Bank Digital Currency (CBDC). At the same time, the region accounts for one-third of world CO2 emissions and i...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
Washington, DC : World Bank
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/099400407132237243/IDU0a124ade308b10049bc0b76606ab6c8403920 http://hdl.handle.net/10986/37702 |
| Summary: | Two-thirds of central banks in the
East Asia and Pacific (EAP) region have started researching
or testing the implementation of a Central Bank Digital
Currency (CBDC). At the same time, the region accounts for
one-third of world CO2 emissions and is vulnerable to
climate risks. As the Group of 7 (G7), European Central Bank
(ECB), and Bank of England (BoE) have stated in their public
statements, it is increasingly important to consider
environmental impact when designing CBDC. However, only a
few brief studies have been done on this subject, which will
be crucial for the region. This Note explores the
environmental implications of CBDC by comparing technical
mechanisms and energy consumption within its distributed
structure. It also illustrates differences in ecological
footprint between CBDC and other payment methods
(cryptocurrency, cash, and card networks). As the legitimacy
of CBDC is backed by the trust of central banks, CBDC does
not need to prove its legitimacy through its technological
structure. Therefore, CBDC does not require the
energy-intensive consensus or mining mechanisms used by a
cryptocurrency, so its energy consumption is lower
(comparable to that of a credit card system). CBDC can be
designed to use various systems, such as Real Time Gross
Settlement (RTGS), Distributed Ledger Technology (DLT), or a
mixture of both. Careful deliberation to meet the objectives
and implications will be important as CBDC can be a catalyst
for financial innovation. |
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