Where do global governments stand on the CBDC issue?

Many countries have explored and tested national digital currencies. Yet, it doesn’t mean they are going to implement them. Read how national opinions on CBDC have changed over time

CBDC

Where do global governments stand on the CBDC issue? Source: depositphotos.com

While the decentralised crypto market is witnessing a sharp decline, Central Banks worldwide keep researching their own virtual currencies. That’s how national opinions on CBDC have changed over time. 

The number of countries exploring CBDC is rising

According to the Atlantic Council tracker, 105 countries, representing over 95% of global GDP, are currently exploring a CBDC. For comparison, two years ago, only 35 nations across the globe were considering the issuance of a country’s official currency in digital form. 

  • 11 countries have already launched CBDC
  • 14 are piloting the trial version
  • 26 countries are developing their CBDC projects
  • 47 – go through the active research phase
  • 10 countries have suspended their research, with projects currently deemed “inactive”
  • 2 pilots were cancelled

Most leading countries are exploring alternative international payment systems. Thus, 19 of the G20 countries are investigating a CBDC issue, with 16 already in the development or pilot stage. These include South Korea, Japan, India, and Russia. Each has made significant progress over the past six months. At the same time, among the G7 economies, the US and UK are the furthest behind on CBDC development. 

Launched projects

As of August 2022, 10 countries have fully launched a digital currency. Those are the Bahamas, Jamaica, eight Eastern Caribbean countries, and Nigeria. Moreover, China’s pilot CBDC program is set to expand in 2023. 

We have previously reported on the top 10 Central Banks leading in CBDC adoption

The Bahamas launched the digital B$, also called the Sand Dollar, in October 2020. The currency is for domestic use only and cannot be accepted by non-domestic payees. At the same time, the digital version of the Bahamian dollar is available for both wholesale and retail applications. 

Jamaica is the latest country to launch a CBDC, in order to offer a digital alternative to its cash-heavy economy. “Jam-Dex” has been in a pilot since 2021 and finally became legal tender this summer. 

The Central Bank of Nigeria officially introduced the “e-Naira” CBDC in October 2021. The bank expects digital currency to bring multiple benefits, including the growth of financial inclusion, facilitating remittances, and reducing the shadow economy. 

As for the Eastern Caribbean countries, their DCash project was the first digital currency used by a monetary union. Although it faced some technical issues this year, leading to a lengthy outage, the pilot remains legal tender. Moreover, the final member country Anguilla joined the CBDC project in June.

testing and research

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Testing and research

Most interested nations are studying the utility of virtual central currencies, either in theory or practice. Over 50 countries across the globe are scrutinising the issue to decide whether the CBDC concept suits national needs. 

For instance, the recent announcement from the Bank of Thailand revealed that the country is ready to extend the scope of retail CBDC development from research to a pilot phase. Real-life application of retail CBDC will run in cooperation with the private sector on a limited scale. 

The localised trial of the digital yuan started in 2021. However, China isn’t rushing to implement the project full-scale. E-CNY faces a variety of challenges both at home and abroad. To begin with, the project is still technically inferior to digital payment services offered by private companies (AliPay, WeChat Pay). Besides, foreign customers also seem reluctant to use e-CNY due to the lack of trust in the Chinese political system and institutions.

The Republic of Kazakhstan started exploring the feasibility of introducing a central bank digital currency back in May 2021. After finalising the initial pilot, the National Bank of Kazakhstan has now released its decision-making framework for the issuance of the digital tenge. Based on the results of the pilot, by the end of 2022, a final decision will be made.

Many countries, such as Sweden, are taking time to estimate all the pros and cons, as well as technical details of the CBDC implementation. Sweden’s central bank, the Riksbank, has been researching, discussing and experimenting with digital currencies longer than most counterparts. It started exploring the potential of e-Krona in 2017 and proceeded to the pilot stage in 2020. However, the second phase of the pilot study has lingered. The government hasn’t made a decision yet on whether CBDC is worthwhile. 

Among Arab central banks, 76% are currently studying opportunities to issue digital currencies. Two of them – Saudi Arabia and the UAE – are already engaged in Project Aber. Within its framework, the Central Banks are exploring the viability of a single dual-issued wholesale digital currency as an instrument of domestic and cross-border settlement between the two countries.

The two countries currently at war – Russia and Ukraine – have conducted extensive research and development of their CBDC projects. While Western sanctions pushed Russia to accelerate digital ruble work, Ukraine has other priorities now. Looking for an alternative to SWIFT, Russia is currently running a pilot for its CBDC with 12 national banks and plans to start consumer pilots in April 2023 instead of 2024. Meanwhile, the Ukrainian pilot launched in late 2021 has been put on hold as the country is struggling with the Russian full-scale invasion. 

CBDC

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Cancelled and suspended projects

Like several other countries, Japan has been working on its CBDC project for a while. It was expected to enter a pilot phase in the near future. However, the country decided to postpone implementation. The reason is – the CBDC idea doesn’t have enough public support. In a technically advanced society, financial inclusion and digital services are not the issues. Thus, the popular blockchain solution lacks public interest. Moreover, the significant prevalence of cash in Japan correlates with its ageing population. Innovative virtual money, on the other hand, is not the best choice for the elderly who constitute nearly one-third of the Japanese population. 

A few countries had a negative experience with CBDC, which prompted them to cancel the ongoing pilots. For example, Ecuador conducted a three-year experiment with digital cash. Over this period, the state system failed to attract a significant number of users or volume of payments. Thus, the project was shut down, simultaneously opening the market to mobile payment alternatives from the country’s private commercial banks and savings institutions. 

Senegal also experimented with an eCFA in 2016. The digital currency was reportedly created in collaboration with an Irish fintech startup, eCurrency Mint. It aimed to provide users with universal access to financial services and increased transaction transparency. However, the project was eventually called off due to compliance issues. 

Furthermore, Singapore’s Project Orchid aimed to build the technical competencies necessary to issue a digital Singapore dollar has been going on in vain. Despite major anticipation heated up by the Global CBDC Challenge, the Monetary Authority of Singapore (MAS) decided the case for a retail CBDC in Singapore is not compelling. Simply put, the country has no typical pressing issues digital currencies could solve.

On the other hand, countries with low financial inclusion also face challenges in implementing CBDC. For instance, Egypt has studied the viability of digital currency integration since 2018. At that time, an estimated 84% of the country was unbanked and it complicated effective testing. The project was paused indefinitely. 

cbdc

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Conclusions

CBDC is a viable solution to many typical financial problems: financial inclusion, high transaction fees, slow processing speed, and lack of transparency. Although cheap and fast payments are widely available domestically via bank-based payment systems and private solutions, cross-border transactions have more pressing issues. 

At the same time, individual CBDC projects are not solving the problems pertinent to cross-border payments unless they are interoperable. Thus, there are currently nine cross-border wholesale (bank-to-bank) CBDC tests and three cross-border retail projects.

Many countries have explored and tested national digital currencies. Yet, it doesn’t mean they are going to implement them. For instance, the US Federal Reserve, Bank of Canada, and Reserve Bank of Australia see no pressing need for a CBDC. Other leading institutions like the European Central Bank are not rushing to implement CBDC projects, taking time to minimise costs, risks and ecological footprints associated with digital currencies. At the same time, many governments acknowledge they may accelerate their development efforts if CBDCs become more widespread globally. 

Therefore, a dozen countries that have launched CBDCs as legal tender can illustrate the use cases, challenges, and opportunities of the innovative financial system. Their positive and negative experiences are being carefully watched and taken into account. Overall, the leading economies of the world are more careful with CBDC projects than developing ones. It is explained by enhanced financial inclusion and market competition that drives better private solutions. On the other hand, countries with less efficient banking systems use CBDCs as a chance to improve public access to digital financial services. 

SEE MORE:

CBDCs can enhance financial stability

Bank of Thailand to pilot retail CBDC

Mastercard launches CBDC testing platform