CBDC: Which countries are using, launching or piloting their own digital currencies?
Digital currencies have grown in popularity over the past few years as cryptocurrencies like Bitcoin entered the mainstream and captured the imagination of millions.
The rise has also turned the heads of central banks around the world as fears grow that national currencies could be undermined by their growth.
In response to these fears, central banks around the world have been exploring the practicalities of creating their own digital currencies.
Nearly 100 countries are actively evaluating central bank digital currencies (CBDCs), according to IMFand some have already started rolling them out.
What are central bank digital currencies?
A CBDC is essentially electronic cash. Like traditional fiat currencies, it gives holders a direct claim on the central bank and allows businesses and individuals to make electronic payments and transfers.
It eliminates intermediaries in financial transactions – primarily banks – and allows transactions to move directly from person to person or from customer to supplier.
This helps eliminate consumer risks, such as the collapse of a commercial bank, and creates a direct link between consumers and a central bank.
The growing popularity of crypto has led central banks to fear losing control over money supply and payment systems. The generalization of payment methods that are not supervised by any central or public body could weaken the grip of central banks on the money supply and economic stability.
The idea of CBDCs comes from cryptocurrencies like Bitcoin or Ethereum. However, there are differences. Cryptos are unregulated and decentralized. They are volatile because their value is based on investors, usage, and speculation. This volatility can be seen in the fluctuations in the value of Bitcoin over the past 12 months. The value of CBDCs is pegged to a country’s currency and they are designed to be more stable and secure.
Networked electronic resources are used by both crypto and CBDCs to create, track, and validate transactions. However, many CBDCs have a central database controlled by a central bank that assigns a unique serial number to each “electronic coin” issued in order to identify it.
“The history of money is entering a new chapter,” IMF managing director Kristalina Georgieva said in an address to the Atlantic Council this week.
“Countries seek to preserve key aspects of their traditional monetary and financial systems, while experimenting with new forms of digital currency.”
Here’s a look at countries that have already rolled out their own digital currencies and some that are close to doing so.
Countries where CBDCs have been launched:
The Sand Dollar was issued by the Central Bank of the Bahamas in October 2020. It was the first national CBDC in the world.
In the Bahamas, part of the population does not have access to financial services because it is not profitable for commercial actors to operate in all areas, partly due to the geography of the country as it is divided into many different islands.
As a result, it is estimated that 20% of the population does not have a bank account. It is hoped that the sand dollar can help improve financial inclusion and strengthen security against money laundering and illicit economic activities.
Nigeria became the first country in Africa to launch a CBDC last October. The eNaira is stored in a digital wallet and can be used for in-store contactless payments, as well as money transfer.
By the end of January 2021, the eNaira wallet had received nearly 700,000 downloads.
The population of Nigeria is approximately 219 million. According to Nigerian media outlet Stears Business, 90% of Nigerians have mobile phones, but only 10-20% use a smartphone, which is required to use eNaira.
To access eNaira, the user must also have a National Identification Number (NIN). This drew criticism. CBDC supporters say they need to reach out to people who don’t have a bank account. However, critics say there will be overlap between those without bank accounts and those without NINs or smartphones.
Eastern Caribbean Currency Union
Eastern Caribbean Union countries created their own form of digital currency intended to speed up transactions and serve people without bank accounts.
The seven countries concerned are Antigua and Barbuda, Dominica, Grenada, Montserrat, Saint Kitts and Nevis, Saint Lucia and Saint Vincent and the Grenadines.
Anguilla was the only country in the union to withdraw.
The Eastern Caribbean Central Bank said “DCash” is the first blockchain-based currency introduced by any of the world’s monetary unions, although some individual countries have similar existing systems.
The system allows users even without a bank account – but with a smartphone – to use a downloaded app and make payments via a QR code. Those without a bank account would go to a pre-approved agent or non-bank financial institution who would verify a person’s information and then approve a DCash wallet.
Countries that are testing CBDCs in pilot projects
Sweden is testing a digital currency called e-krona. It is expected that the tests will move from simulated participants to a test environment with external participants.
Sweden’s Riksbank has developed a proof of concept and is exploring the technological and policy implications of CBDC.
One of the main goals of the project is to ensure wide access to e-krona in the future. He wants to protect the elderly and people with certain disabilities to ensure that they are not affected in a cashless society.
China became the first major economy in the world to pilot a digital currency in April 2020. The People’s Bank of China is targeting widespread household use of e-CNY, or digital yuan, in 2022.
It currently has more than one hundred million individual users and billions of yuan in transactions, according to the IMF.
The country is currently providing digital yuan payment services to visitors to the Beijing Winter Olympics which started last week. Visitors can download the yuan digital wallet app or store the money on a physical card.
Jamaican Prime Minister Andrew Holness has confirmed that the Bank of Jamaica will launch a digital Jamaican dollar in 2022 after a successful pilot project last year.
“This will serve as the foundation for Jamaica’s digital payments architecture and will facilitate greater financial inclusion, increase transaction speeds while reducing the cost of banking for the people of Jamaica,” he said Thursday.
As part of the test project, 230 million Jamaican dollars (1.28 million euros) of digital currency was minted. 57 customers conducted person-to-person, cash-in and cash-out transactions, including transactions with small businesses such as a local artisan jeweler.
The National Bank of Ukraine has been studying the possibility of issuing a national digital currency since 2016.
Now the country is preparing a pilot test of its own CBDC.
The upcoming pilot project “will serve as a technological basis for issuing e-money and is the next key step to advance payment and financial infrastructure innovation in Ukraine”, said Oleksandr Bornyakov, Ukrainian Deputy Minister of digital transformation in a press release.
Countries where CBDCs are in development
India is expected to launch a state-backed digital currency by next year, the government announced last week.
The “digital rupee” will be based on blockchain technology and is expected to be operational by the end of March 2023. It will be backed by the Reserve Bank of India.
Indian Finance Minister Nirmala Sitharaman said digital currency would give a “big boost” to the digital economy and it would also lead to a more efficient and less costly currency management system.
The European Central Bank (ECB) announced last July that it is actively studying the creation of a digital version of the euro.
“Our work aims to ensure that in the digital age, citizens and businesses continue to have access to the safest form of money, central bank money,” said Christine Lagarde, president of the ECB.
As the custodian of money, the ECB is closely watching the rise of private cryptocurrencies like Bitcoin as the COVID-19 pandemic accelerates the shift away from cash.
The European Commission announced on Wednesday that a bill for a digital euro would be proposed in 2023.
The ECB will continue its work to develop its digital euro in the meantime.