With a changing financial world ahead of us, what banks are leading the charge into a world where CBDCs are a common occurrence? If the private sector is going to be utilizing cryptocurrency as a financial instrument, central banks won’t be far behind.
Who’s planning for the financial future? And who’s lagging behind? Find out below.
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WHAT COUNTRIES HAVE PLANS FOR CENTRAL-BANK CRYPTOCURRENCIES?
What Countries Have Plans For Central-Bank Cryptocurrencies?
With a changing financial world ahead of us, what banks are leading the charge into a world where CBDCs are a common occurrence? If the private sector is going to be utilizing cryptocurrency as a financial instrument, central banks won’t be far behind.
Who’s planning for the financial future? And who’s lagging behind? Find out below.
MICHAEL BROWN | JAN 20, 2023
What is a Central Bank Digital Currency?
A Central Bank Digital Currency (CBDC) is a digital form of a central bank’s currency. Similar to cryptocurrency, however, the digital token that makes up a CBDC is pegged exactly to the currency issued by a central bank. For example, a dollar-based CBDC would be a purely digital representation of the United States Dollar. It would have exactly the same value as a physical dollar and remain exchangeable in all of the same places as a physical dollar.
Another key distinction which sets CBDCs apart from cryptocurrency is that they are owned by central banks, as the name suggests. Cryptocurrency up until recently has been almost exclusively an affair of the private sector. CBDCs are state-owned entities.
Overview of CBDCs Around the World
According to the Atlantic Council, 100 countries around the world are all in some stage of developing a CBDC. Of these 100, 11 countries have launched a CBDC program which is active right now. 17 in pilot testing, 33 in development and 39 still undergoing research. To get a measure of that, the Atlantic Council has a handy map on their website, linked above, to flip through the various countries at all stages of development. A preview of the map can be seen below.
As we can see, CBDCs have become quite a popular financial instrument. However, very few countries have a CBDC system active. These are Nigeria, The Bahamas, Jamaica, and the members of the Eastern Caribbean Currency Union. Nigeria is forward thinking in this sense, having launched the eNaira wallet in January of 2021. Whether or not these programs can be deemed a success, remains to be seen as they have only recently gotten off the ground. As of 2023, Jamaica is the most recent country to launch a CBDC.
Upcoming Developments
With 100 countries at one stage of development or another, it’s important to recognize that some are more enthusiastic about CBDCs than others. In 2023, China plans to expand the scope of their pilot program which was tested by 260 million people in 2022 to most of its population.
Australia, Brazil, Russia, South Korea, and Thailand all plan to make major steps in their pilot programs in 2023. If you’re keen on the prospect of CBDCs, those will be countries to watch for. All G7 countries are expected to enter the pilot phase this year as well.
The Major Players
Some projects of note to watch are the European Central Bank (ECB), Russia’s pilot program, and Japanese developments of their CBDC. The ECB is planning on a two-tier system for their CBDC. What this two-tiered system entails is not entirely clear, however, the ECB’s focus in their whitepaper is placed on general use of the currency. That is, for the purposes of making everyday purchases.
The ECB has also recommended that the digital Euro be interest-bearing. Meaning that attractive interest rates should be offered for small sums, suitable for making purchases or payments, with lower interest rates applied to large amounts. The intent is not to make the digital Euro a store of value.
Experimental as ever, the Bank of Japan (BOJ) differs from the motives of other countries. Cash is still very much king in Japan. As well, the memories of the earthquake and tsunami from 2011 remain fresh and have therefore prioritized placing a focus on Japan’s currency remaining functional in the event of losing power. Resilience of the CBDC is a priority for the BOJ, something missing from a number of CBDC projects in the West.
Finally, Russia’s central bank has been aggressively developing their CBDC in the wake of the sanctions raised against them due to the war in Ukraine.
The goal of their CBDC development is de-dollarization and encouraging other nations to follow suit. If you find alternatives to the dollar attractive, Russia may be a CBDC to keep an eye on. Russia plans to beta test the digital ruble in 2023, with a full launch planned by 2024.
The Usual Suspects
While it might seem like the United States is lagging behind others pushing for a CBDC, they have a lot of reasons not to rush head first into the technology. Being the largest reserve currency and facing threats of inflation and recession, it makes sense for the United States to slow the financial roll a little bit.
The United States Federal Reserve
The Federal Reserve has expressed concern that they may fall behind others in the financial meta, particularly the EU. As a result of this, the Federal Reserve has launched Project Hamilton and Project Cedar.
Cedar was executed in November 2022 as a trial run of a CBDC. Hamilton is more broad in scope and in the first phase alone found that at minimum, a digital dollar would be able to process 99% of transactions in less than five seconds and settle between 17,000 and 1.7 million transactions per second.
However, being the competitive place the United States is, there are other private entities also competing with independent projects to win the favor of the Federal Reserve as the lead developer for a digital dollar.
Bank of England
Lagging behind is the Bank of England (BoE). In a study conducted by the House of Lords, the committee found that there was no reason for the BoE to issue a CBDC. However, the office of the exchequer issued a technical paper describing the reasons why the UK would benefit from a digital currency and since then, the BoE has been searching for would-be developers of a digital wallet.
