06 Feb 2023 Jane Whitmoore
114 Nations Are Currently Researching CBDCs
Despite a rollercoaster ride for the crypto sector in 2022, CBDC development is still going strong. Research by Atlantic Council reveals that 114 nations with a combined GDP of over 95% are currently exploring the capabilities of central bank digital currencies (CBDCs).
For instance, 260 million individuals are using China’s e-CNY digital currency. The development of CBDC is active in 18 of the G20 nations.
“Nearly every G20 country has made significant progress and invested new resources in these projects over the past six months,” the researchers noted, highlighting that one of the most active developers of CBDCs is those in emerging nations. For instance, the first two countries in the Global South to completely establish CBDCs are Nigeria and the Bahamas, and more are anticipated to do so shortly.
Despite the digital currency's form, there are concerns about state-issued digital currencies. Among the main concerns that skeptics voiced, are whether or not CBDCs would have any privacy support, and whether CBDCs are subject to hacking and governmental pressure.
Jonas Gross, chairman of the Digital Euro Association (DEA), added that central banks are onboarding the CBDC train with many of the central banks already going into advanced development stages. However, “the clear majority is still conducting research,” he notes, “and has not yet decided if CBDCs will be issued,” according to Gross.
CBDC development across continents
Financial institutions like the International Monetary Fund (IMF), noted that “the Asia-Pacific region is at the forefront of CBDC exploration.” China is the most advanced nation in CBDC development, followed by India and Thailand. Countries like Korea, Japan, Malaysia, and Singapore are also on the proof-of-concept train for CBDCs, while Australia announced a small-scale pilot program, running on an Ethereum-based platform.
Europe is also working actively on digitizing the Euro, but its progress is not at the same speed as the speed of CBDC development in India and Singapore. It turns out that western countries, due to their relatively good payment systems, have no urgency in developing digital currencies. However, Jonas Gross predicted a digital euro with limited features by 2026.
The United States, on the other hand, is lagging in CBDC development, despite the recent Project Cedar efforts, done by The New York Federal Reserve Bank. Project Cedar is aimed at wholesale CBDC usage, rather than retail, which is less “impactful” than retail designs, which require “additional process, policy input and time,” according to Thomas Cowan, who worked on a CBDC study titled Project Hamilton.
Apart from Nigeria and China, the CBDC projects are in circulation in small economies like the Bahamas. However, according to Kaj Burchardi, managing director at BCG Platinion. Indeed, with the rise of mobile payment services like Alipay and Weixin Pay, China’s financial regulators lost control of peer-to-peer transactions. In turn, the e-CNY would regain this control, allowing the Chinese state to oversee the transactions and conduct monetary surveillance.
Other implications for CBDCs include being used as a monetary instrument, mainly for governments to subsidize its citizen in times of crisis, which the world saw with the U.S. stimulus checks.
“The emergence of private crypto assets has created an impetus to consider CBDCs,” the IMF stressed, indicating that the private sector is putting pressure on state-issued digital currencies.
China, Mexico, and Nigeria “tend to be more enthusiastic about retail CBDCs and have clearer motivations for their issuance, relative to central banks in advanced economies such as Canada, Japan, and Singapore,” according to Ying Lei Toh, a Fed economist. Toh further explained that the share of unbanked individuals in countries like Mexico and Nigeria sits around 60% and CBDCs could be a tool for nationwide financial inclusion.
However, many central banks continue to explore caution. Two rounds of CBDC study have been completed by the Central Bank of Taiwan, which looked at both wholesale and retail designs. The bank says it is proceeding cautiously since the adoption of a CBDC entails not just the digitalization of currency but also induces a "reform of the payment system."Ethereum central banks International Monetary Fund china currency cryptocurrency news thailand crypto news digital Europe India CBDC