81 countries are exploring the possibilities of introducing Central Bank Digital Currency into their economies. These 81 countries represent over 90% of global GDP, so now is the time to start thinking about the possible effects this may have on the future of the global financial sectors.
Currently, five countries have launched a digital currency – the first of which was the Bahamas with the Sand Dollar. The other four are Grenada, St Lucia, St Christopher and Nevis and Antigua and Barbuda. Below, we concentrate on some of the more advanced economies and their plans for a Central Bank Digital Currency.
China is without a doubt the furthest down the road of any G20 country regarding the introduction of CBDC. They introduced their CBDC special task force in 2014 and will soon be adopting E-Yuan which will be backed by the Chinese Central Bank. The Chinese government has confirmed E-Yuan will be used for shopping. Visa have announced that they have expressed interest in helping E-Yuan move into mainstream markets.
Interestingly, China did house in excess of 50% of the world’s digital miners. These miners are now moving to Texas, USA, as China took their power away and Texas is offering them cheap power supplies.
On June 29th 2021 the Bank of Russia launched their CBDC pilot scheme together with twelve Russian commercial banks. The largest of these banks is Sberbank, together with Alfa Bank, VTB and Gazprombank. The Bank of Russia wishes to ensure their commercial banks are able to convert their systems so there is an easy transition from paper and coin currency to digital currency. A prototype for the digital rouble is planned for the first quarter of 2022, following which the Bank of Russia will issue a roadmap for future incorporation.
Although a discussion paper was issued in March 2020, The Bank of England have announced that they have yet to make a decision on whether or not to introduce CBDC. If CBDC were to be introduced just like fiat currency it would be denominated in Sterling.
A taskforce has been created on instructions from HM Treasury and the Bank of England. They have also created the CBDC Technology Forum and the CBDC Engagement Form. Both forums will gather and collate strategic input from their stakeholders. We await further updates, but it would appear that the United Kingdom is lagging behind in the CBDC arena.
The Banque de France has been concentrating their CBDC tests on the wholesale market rather than the consumer market. Recently the bank utilising a wholesale CBDC, completed a simulated securities settlement. The upshot was a more transparent and efficient capital markets system. Furthermore, the Banque de France has completed, in conjunction with the Monetary Agency of Singapore, wholesale settlement and cross-border payment trials utilising CBDC. Similar successful trials have been completed with the Swiss National Bank.
Whilst there have been no CBDC trials or experiments, the Bank of Canada has echoed the need for a Canadian digital currency. Like other countries they feel that a decline in utilising cash is an emphatic reason for going digital. The other reason is monetary sovereignty that again may well be challenged by alternative or non-domestic digital currencies. Facebook’s Diem, (previously Libra) was again singled out as potential competition. They also singled out the high cost to merchants that take debit and credit cards. CBDC would alleviate this problem.
IN early July 2021 a Japanese lawmaker announced that in 2022 there will be improved clarity on what form the digital yen will take. The lawmaker, Heidi Murai is responsible for overseeing the digital currency plan proposed by the ruling Liberal Democrat Party. Japan has yet to make any decision on the issue of CBDC.
The USA is clearly the most advanced and digital ready country. It is therefore interesting that the chairman of the Federal Reserve Christopher J Waller opined that he was sceptical when it came to CBDC. He further advised that he did not believe that the US economy would become cashless. Furthermore, in a recent debate in congress a number of senators voiced their concerns regarding CBDC.
The European Central Bank (ECB) has advised of the threat to those countries that choose not to incorporate Central Bank Digital Currencies. They fear that cross-border payments and domestic payments could become dominated by non-domestic providers.
An example of such dominance is Facebook’s Diem (previously Libra), which has the potential to issue artificial currencies. Such dominance is a potential threat to financial stability leaving both businesses and consumers vulnerable.
By launching CBDC domestic payments, it would retain their autonomy as would the usage of the currency in a new international digital world. The ECB in partnership with the European Commission have been discussing launching the digital Euro since January 2021.
The reticence of the United States towards CBDC is interesting considering that 81 of the world’s countries are actively considering launching a digital currency. However, those who wield the power in the USA no doubt still feel that as the largest economy in the world, the US Dollar will always be the currency of last resort. Also, congress’s attempt to bring cryptocurrencies within the realm of the IRS, could well devastate the crypto market in the USA.
It seems inevitable that in some G7, G20 and lesser developed countries, change is inevitable and Central Bank Digital Currencies will start to appear. In many countries, cash is becoming a scarce commodity and coupled with the fear of non-domestic digital currencies, posing a threat to sovereign autonomy, the case for Central Bank Digital Currency has pretty much been decided.