KUALA LUMPUR: The increasing adoption of digital finance has captured the attention of policymakers in central banks and governments, prompting heightened interest and scrutiny,  Moody's said.

Moody's Investors Service said central bank digital currencies (CBDCs) has emerged as one of the most promising digital cash options, embodying the essential properties of a currency - unit of account, medium of exchange and store of value.

In its latest report, Moody's disclosed a rapid expansion of CBDC projects globally, with a significant majority of sovereigns such as Bahamas, Jamaica and Nigeria either exploring or actively piloting such initiatives.

"CBDC projects are motivated by various factors, including enhancing domestic payments efficiency, bolstering financial stability, and fostering financial inclusion," it said in a statement today.

Moreover, wholesale CBDC projects aim to improve cross-border payments, addressing the challenges posed by the current fragmented payment landscape.

Moody's anticipates a continued uptick in CBDC projects over the next three to five years, reflecting the growing momentum towards digitalisation in the financial realm. 

Notably, the European Central Bank's (ECB) digital euro project signifies a landmark development, poised to transform the eurozone's payment architecture.

Despite the transformative potential of CBDCs, Moody's expects the credit impact on euro area sovereigns to be limited, given the region's efficient payment infrastructure and stable financial system. 

Moreover, initiatives such as Project Icebreaker aim to facilitate real-time cross-border payments, offering economic efficiency benefits across regions.

According to the Bank of International Settlements (BIS), CBDC pilots are underway in more than a third of sovereigns rated by Moody's, covering about 80 per cent of global GDP.

While live CBDCs currently represent a small share of global GDP, ongoing pilots and research initiatives underscore the widespread interest and commitment to exploring digital currency solutions.

The BIS survey indicates a potential surge in the circulation of CBDCs by the end of the decade, reflecting a growing consensus on the transformative role of digital currencies in the future of finance.

https://www.nst.com.my/business/corporate/2024/04/1041941/rising-digital-finance-adoption-comes-heightened-government