We have already written about what central bank digital currencies, also known as CBDC, are in this article. CBDCs are so-called digital tokens, like cryptocurrency in many respects, but they are issued and controlled by central banks. In general, they can be described as digital or virtual money, which is pegged to the value of that country’s fiat currency.
something new in the financial world, some see them as the future, and others
believe they spell economic doom.
pretty extensive plans for introducing a digital euro at the European Union
level. Currently, talks and negotiations are still taking place on what such a
currency should look like, and the European Central Bank has said it could be
launched in about four years.
countries or central banks have already introduced digital currencies, while
others have launched them in test form. According to the Atlantic Council, an
independent organisation based in Washington DC, 87 countries (representing
more than 90 per cent of global GDP) are researching CBDCs. In May 2020, only
35 countries were considering CBDC.
Digital currencies in the
Bahamas, Caribbean and Nigeria
digital currencies are currently in full swing in nine countries. They have e-Naira
in Nigeria, the Sand Dollar in the Bahamas, and DCash in seven
countries where the Eastern Caribbean Central Bank operates.
2019, the Central Bank of the Bahamas launched the Sand Dollar project on the
island of Exuma. After successfully completing the pilot programme, the digital
currency became available nationwide in October 2020. The “sand
dollar” is the world’s first digital currency.
As soon as
it was issued, the digital currency became available to all citizens in the
Bahamas, while integration with the commercial banking system was introduced
to the official website, the Sand Dollar allows greater flexibility and
accessibility for residents who want to participate in financial services via
either a mobile phone application (iOS and Android) or using a physical payment
card to access a digital wallet. It also provides an excellent record of income
and spending, which can be used as supporting data for micro-loan applications.
2021, the Eastern Caribbean Central Bank also introduced its blockchain-based
CBDC, called DCash, for public use in the seven island countries participating
in the Eastern Caribbean Currency Union, including Dominica and Grenada. However,
in January this year, a technical error related to security certificates
disabled DCash, which remained inactive for several weeks.
2021, Nigerian President Muhammadu Buhari unveiled the e-Naira currency,
Africa’s first CBDC. However, the digital currency was issued only a few months
after the Central Bank of Nigeria banned cryptocurrency-related activities.
introduction of digital currency, the central bank governor said that around
500 million eNaira had been issued, amounting to about 1.21 million US dollars.
Currently, only people with bank accounts can access the digital currency, and
in the next phase, use with the help of a national identification number is
also envisaged. Depending on how many credentials users provide, there is a
limit to eNaira transactions.
Pilot programmes of
digital currencies in several countries, including Russia and China
A few more
countries have launched CBDC pilot projects. Pilot projects are underway in 15
countries, including Sweden, Ukraine, Russia and China.
Bank of Sweden, Sveriges Riksbank, is currently investigating whether it would
be possible to launch its own virtual currency, the e-krona. A final decision
has not yet been reached. Still, they have recently moved from the project
phase. They tested the digital currency with simulated participants and will
move on to the next phase, which involves working with external participants in
a test environment. The project started in 2017.
2019, the National Bank of Ukraine successfully completed a two-month pilot of
a national digital currency, the e-hryvnia. In January 2021, the bank signed a
contract with the Stellar Development Foundation to help develop the CBDC,
among other things. In July 2021, Ukraine adopted legislation to legalise
cryptocurrencies, which opened opportunities for further development of the
Bank of Russia published a report for the first time in October 2020, in which
they analysed a possible CBDC that would be pegged to the rouble. In September
last year, they announced that they would begin pilot testing of the digital rouble
in January 2022 and that they see no obstacles to the actual introduction. In
February 2022, the Bank of Russia launched the testing of the digital rouble
platform and successfully completed the first digital rouble transfers between
2020, China became the first major economy to decide to test its digital
currency. In February this year, the pilot project operated in 11 regions.
Chinese officials said the digital currency would have “controllable
anonymity”, which will allow the government to ensure a decent level of privacy
while also regulating the prevention of money laundering and other illegal
pilot projects can be found in Saudi Arabia, the United Arab Emirates, South
Africa, Singapore, Malaysia, South Korea, Lithuania, Hong Kong, Thailand,
Jamaica, and Anguilla.
In most countries so far, only
research is underway
still underway in 40 countries or monetary unions on what the digital currency
would look like, while 16 countries have already begun to develop theirs.
In October 2021, the European Central Bank launched a two-year investigation phase to define the design features of a digital euro, such as how to ensure confidentiality, which use cases to prioritise and what business options to offer intermediaries. The research also examines how to distribute the digital euro to retailers and the public, its impact on the market, and the changes to European legislation that might be needed.
The US, one
of the countries with the four largest central banks (the US, the euro area,
Japan and the United Kingdom), lags behind most. The US Federal Reserve is exploring
the possibility of introducing a CBDC. In January 2022, the Federal Reserve
also issued a report on the subject.
specific commitment was made to introducing a CBDC, they highlighted the many
potential benefits of such digital currencies. They called on Congress and the
public to engage in this critical discussion. However, on March 9th, 2022, the
Biden Administration released the Executive Order on Ensuring Responsible
Development of Digital Assets, urging the entire government to develop a CBDC.
in the two countries where the projects were cancelled?
the Ecuadorian Central Bank (BCE) introduced the digital currency Sistema de
Dinero Electrónico (SDE), of which every dollar was backed by a physical
dollar stored in the BCE. Although 500,000 users were expected by the end of
2015, only 5,000 had signed up.
At the end
of 2017, 402,515 accounts were created, of which less than 30 per cent were
active. A year later, the digital currency SDE accounted for less than 0.003 per
cent of all cash in circulation. Distrust of the central bank, mainly due to
past mistakes made by the government, contributed to the poor adoption of the
SDE, and the project was cancelled in December 2017.
the West African Economic and Monetary Union (WAEMU) decided to use the Senegal
Member State as a testing ground for a potential digital currency. From the
very beginning, the central bank distanced itself from the project, which was
cancelled shortly afterwards. In addition, they have stated that they have no
intention of developing a CBDC soon.
Author: Marko Želko
Keywords: CBDC, digital currencies, money,
article is part of joint project of the Wilfried Martens Centre for European
Studies and the Anton Korošec Institute (INAK) Following the path of
digitalization in Slovenia and Europe. This project receives funding from the
information and views set out in this article are those of the author and do
not necessarily reflect the official opinion of the European Union
institutions/Wilfried Martens Centre for European Studies/ Anton Korošec
Institute. Organizations mentioned above assume no responsibility for facts or
opinions expressed in this article or any subsequent use of the information