Interest in central bank digital currencies continues to grow
Several governments have already started experimenting with their own digital currencies
Despite the unpredictable and volatile nature of cryptocurrencies like Bitcoin or even Dogecoin, central banks around the world are conducting trials or at the very least considering using their own digital currencies.
According to data from the Bank for International Settlements, over 80% of the world’s central banks research CBDCs (central bank digital currencies). A white paper on digital currencies by Accenture and Swift also reveals that more than half of the world’s central banks are actively exploring the use of CBDCs.
Efficient and cost-effective CBDCs have garnered a lot of interest in recent years, with financial regulators optimistic about the technology’s ability to better track transactions and spot illegal or fraud-related activity.
China has made the most progress in developing its own CBDC so far, having given thought to the idea as early as 2015 as part of its DC / EP (digital currency / electronic payment) program. Since then, the People’s Bank of China (PBoC), the country’s central bank, has been actively experimenting with the technology in some Chinese cities, including the country’s technology hub, Shenzhen.
In October 2020, the Shenzhen government disbursed 10 million yuan ($ 1.5 million) of e-RMB in 50,000 red packets to local citizens, and an increasing number of stores began to accept e-RMB as a form of settlement.
In the European Union, the Banque de France, the country’s central bank, piloted a digital euro for interbank settlements on a private blockchain platform in 2020. In Asia, the Monetary Authority of Singapore has taken an active interest in CBDCs as a way to make more efficient cross-border payments as part of its Ubin project.
The US has taken a cautious approach to CBDCs, concerned about the proper development of a legal / regulatory framework and what a digital currency would mean for monetary stability. Nonetheless, US-based companies such as JP Morgan and Facebook have led the conversation around the possible use of digital currencies in the world’s largest economy.
Traditional cross-border payment infrastructures such as Swift are bracing for the inevitable use of CBDCs, with interoperability between different systems seen as the basis for success. “Making payment infrastructures based on CBDCs efficient and interoperable with the economy as a whole presents new challenges, but the majority are the same as those faced by existing payment solutions,” said Thomas Zschach, director of the innovation at Swift.
Although exciting, CBDCs still have a long way to go before they are accepted into the traditional financial network. Problems of confidentiality and monitoring of the use of digital currency will be raised, in particular when the governance of certain markets is questioned.
A recent white paper by JP Morgan on digital transformation indicates that the introduction of digital currencies could potentially slow the volume gains of digital payments, as paper-to-cash transactions were traditionally the biggest source of volume gains through digital payments. .