The Race of Central Bank Digital Currencies

The Race of Central Bank Digital Currencies

By
Nikola Petrovich
3 min read

The Global Race for Central Bank Digital Currencies

Hey there! Let's delve into the exciting world of Central Bank Digital Currencies (CBDCs). There's a fierce competition among nations to introduce their digital versions of national currencies.

First off, the Bahamas led the way by launching the "Sand Dollar" in 2020 to address the 20% of their population without bank accounts. Following their lead, Nigeria, Jamaica, and the Eastern Caribbean Union have also unveiled their CBDCs.

Sweden is a strong contender for the next launch, as they are already a cashless society and have been testing the e-Krona. They aim to launch it next year, being cautious about potential impacts on certain groups.

Israel is also making significant progress with the digital Shekel, thanks to collaborations with tech companies like PayPal and COTI. COTI's emphasis on addressing privacy concerns is particularly noteworthy in the realm of CBDCs.

And of course, China cannot be overlooked. They took the lead as the first major economy to pilot a CBDC with the e-CNY, or digital yuan, in 2021. Over 100 million people across 29 pilot cities are already using it, but privacy concerns remain a challenge.

In addition to the Bahamas, Nigeria, Jamaica, and the Eastern Caribbean Union, several other countries are making notable progress with Central Bank Digital Currencies (CBDCs). India is in the advanced stages of piloting its digital rupee, aiming to boost financial inclusion and reduce the cost of cash management. Brazil has been testing its CBDC, the digital real, with a focus on improving payment systems and financial innovation. The European Central Bank (ECB) is also moving forward with its digital euro, which is in the investigation phase with plans for potential issuance in the coming years. Meanwhile, Russia is accelerating efforts for the digital ruble, seeing it as a way to counteract sanctions and bolster its financial system. Lastly, South Korea is in the testing phase of its digital won, focusing on securing seamless integration with existing financial systems. These initiatives demonstrate the global momentum towards CBDCs across a wide range of economic contexts.

Key Takeaways

  • Four countries - Bahamas, Nigeria, Jamaica, and Eastern Caribbean Union - have officially launched CBDCs.
  • Sweden is testing the e-Krona and aims to launch it in the near future.
  • Israel is developing the digital Shekel with privacy technology from COTI.
  • China's e-CNY is already in use by over 100 million people across 29 pilot cities.
  • CBDC adoption is driven by the need to serve populations without bank accounts and enhance transaction privacy.

Analysis

The global race to implement CBDCs is motivated by financial inclusion and technological advancement. Sweden's e-Krona and Israel's digital Shekel, backed by tech collaborations, face challenges in privacy and societal impact. China's e-CNY, widely adopted yet shadowed by privacy concerns, sets a precedent. Short-term impacts include enhanced financial access for unbanked populations, while long-term consequences may reshape monetary policies and international trade dynamics. Tech firms and central banks play pivotal roles, with potential gains or losses contingent on CBDC success and public trust.

Did You Know?

  • Central Bank Digital Currencies (CBDCs):
    • CBDCs are digital representations of a country's official currency issued and regulated by the central bank. They offer a modern, digital alternative to physical cash and coins, enhancing the efficiency and security of financial transactions.
    • CBDCs can be account-based, where users have an account at the central bank, or token-based, where digital tokens represent the currency. They aim to combine the benefits of physical cash with those of digital payments, such as speed, traceability, and reduced costs.
  • e-Krona (Sweden's CBDC):
    • The e-Krona is Sweden's proposed digital currency, currently under testing by the Sveriges Riksbank, the central bank of Sweden. It aims to serve as a complement to the existing monetary system in Sweden, ensuring the central bank remains relevant in a predominantly cashless economy.
    • The e-Krona project emphasizes stability, security, and efficiency while minimizing any negative impact on financial stability and monetary policy.
  • COTI (Company involved in CBDC development):
    • COTI, or the Currency of the Internet, is collaborating with Israel's central bank to develop the digital Shekel. Their technology focuses on addressing privacy concerns associated with CBDCs, aiming to provide a scalable and user-friendly platform for digital currencies, with features like instant payments, low transaction fees, and enhanced privacy measures to protect user data and transaction details.

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