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CBDCS have generated considerable interest, hype and attention from across the financial world lately – from regulators to politicians and of course, web3 startups. Before we delve into the why, let’s understand what they are.
A Central Bank Digital Currency (CBDC) refers to a digital form of fiat currency issued and backed by a country’s central bank. CBDCs differ from cryptocurrencies such as Bitcoin and Ethereum because they are not decentralized, and their worth is correlated with the worth of the national currency. The potential benefits of CBDCs include increased financial inclusion, reduced costs and efficiency in payment systems, and enhanced monetary policy tools for central banks.
CBDC efforts worldwide from several noteworthy nations have recently gained significant attention, with more countries considering creating their digital currencies. In this post, we provide a glimpse into the current CBDC efforts worldwide, focusing on some of the major initiatives by central banks in different regions.
CBDCs are designed to be used as a digital form of cash that can be used for every day transactions, just like a physical currency. They involve a central bank producing and backing digital fiat money known as CBDC, or Central Bank Digital Currency.
The motivations behind CBDCs include:
However, the design and implementation of CBDCs raise important questions related to monetary policy, financial stability, and privacy. CBDCs are still experimental, with many central banks exploring the possibility of launching their own CBDC efforts.
The development of CBDCs has gained momentum in recent years as many central banks explore the potential benefits and risks of issuing their own digital currencies. Additionally, the COVID-19 pandemic has expedited the transition to digital payments, leading to increased interest in CBDC efforts worldwide.
Here are some examples of the significant CBDC efforts worldwide efforts:
The Sand Dollar was introduced by the Central Bank of the Bahamas, the country’s digital currency, in October 2020, becoming one of the first CBDC efforts in the world. The Sand Dollar is designed to improve financial inclusion in the country by providing an alternative payment method for the unbanked or underbanked.
The Sand Dollar can be used for everyday transactions like buying groceries or paying bills and is accessible through a mobile app. The Bahamas Central Bank intends to gradually replace their physical currency in favor of the Sand Dollar over time. The Sand Dollar has been well-received, and other countries are closely watching its progress.
The eNaira was launched by the Central Bank of Nigeria in 2021. The CBDC is based upon a blockchain, and it can be stored in digital wallets for transactions. Further, the eNaira can be used in both domestic and cross-border payments at very little cost.
There are several reasons as to why Nigeria launched the eNaira:
India announced its plans for a CBDC in its Budget 2022, and has already launched pilot programs for two different kinds of digital rupee, one for wholesale (CBDC-W) and one for retail (CBDC-R). The wholesale CBDC pilot was launched on November 1, 2022, and the retail CBDC pilot was launched a month later on December 1, 2022. The wholesale CBDC effort started with nine banks, and the retail CBDC pilot involved four cities and four of the primary banks in the country.
As of 2023, It has been extended to 15 cities. Over 50,000 customers and 10,000 small and big merchants are part of India’s CBDC pilots.
Russia debuted its very first digital ruble trial runs in February 2022, as stated in the official CBDC released by the country back in 2021. A group of twelve banks was formed to test out the digital ruble, which included major banks in the country like Sber, VTB, Tinkoff Bank, and more. Currently, the country plans to push out digital ruble across all banks in the country by the end of 2024.
The Bank of Russia has stated that its ultimate goal with a CBDC is to improve the efficiency and security of the payments system in Russia while promoting financial inclusion and reducing the dependence on foreign payment systems. The bank has emphasized that any digital ruble issued would be backed by adequate reserves and adhere to high security and privacy standards.
China was one of the first countries to launch and test out a central bank digital currency. The e-CNY trials have been taking place for a couple of years now, as city-wide efforts and usually in the form of lotteries where citizens have won small amounts of said CBDC. the country has also been encouraging merchants to accept payments in e-CNY to promote adoption of the CBDC.
The e-CNY trials from the People’s Bank of China are now to be extended to four of the major provinces in China, which includes Guangdong, the most populous province, and Jiangsu, Hebei, and Sichuan.
The Bank of Canada has planned 2023 CBDC consultation with the general populace of the country, but they are yet to join the CBDC efforts worldwide for sure. As part of their research and development into a central bank digital currency, they have moved from the research phase, and now are in the development phase.
The Bank of Canada has emphasized that any CBDC issued would be designed to focus on Canadians’ needs and would adhere to high standards of security, privacy, and accessibility. The bank has also noted that a CBDC could bring benefits such as increased efficiency, lower transaction costs, and improved financial inclusion.
The Bank of England has been studying the potential benefits and risks of a CBDC since 2015 and has conducted several rounds of research and consultations on the topic. In 2020, the bank launched a discussion paper on the possible introduction of a CBDC, which received an approach to the design of a CBDC.
The Bank of England has emphasized that any CBDC issued must meet high standards of safety, efficiency, and accessibility and work alongside existing payment systems. The bank has also noted that a CBDC could bring benefits such as increased resilience of the payments system, improved financial inclusion, and increased efficiency.
The United States Federal Reserve has been actively researching the potential benefits and risks of a CBDC and has been exploring various aspects of the technology, including design, security, and privacy considerations. The Federal Reserve has emphasized that any CBDC issued would need to be secure, efficient, and accessible and work in harmony with existing payment systems.
The Federal Reserve has also been consulting with stakeholders and exploring the potential implications of a CBDC for monetary policy, financial stability, and the broader economy. The Federal Reserve has not decided whether to issue a CBDC, but the ongoing research and consultations demonstrate the country’s commitment to exploring new payment technologies and promoting innovation in its financial system.
Sweden’s central bank, Riksbank, has been at the forefront of CBDC research and development and has been exploring the potential for a digital version of the Swedish krona for a while. The Swedish central bank’s digital currency project named the e-krona is currently under one of its several phases of trial, and it is nearly ready to be implemented into banking networks of the country.
Banks that participated in the trials include Handelsbanken and Tietoevry.
The Bank of Jamaica has introduced the CBDC JAM-DEX as an alternative to the cash-based economy in the country. Moreover, the country has also made JAM-DEX legal tender, making Jamaica the first country out of the CBDC efforts worldwide to legalize CBDC.
JAM-DEX had been in a pilot phase since August 2021, and now the Jamaican Senate has given the Bank of Jamaica approval to issue the JAM-DEX, or the Jamaican Digital Exchange.
In conclusion, many nations have been exploring the potential for CBDCs and actively researching and developing the technology. And these efforts clearly reflect a growing recognition of the potential benefits that CBDCs could bring, including increased efficiency, improved financial inclusion, and greater resilience of the payments system. On the other hand, governments across the world clearly intend to do everything to keep its control over money and power intact. With the introduction of CBDC, they are aiming to discourage their citizens to keep away from the volatile world of cryptocurrencies and stablecoins. Having said that, it would be hard to stop the growth of cryptocurrencies considering the tiny fraction of crypto adopters now have experienced the efficiency and power of P2P trading and decentralization first hand.
So far, CBDC efforts worldwide have been proceeding cautiously as nations conduct thorough research and consultations to ensure that any CBDC issued meets high standards of safety, efficiency, and accessibility. It’s undeniable though, that the ongoing efforts and developments in CBDCs represent an important and exciting area of innovation in the global financial system.
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