Before Covid -19, central bank digital currencies were largely a theoretical exercise but with the need to distribute unprecedented monetary and fiscal stimulus around the world, combined with the rise of cryptocurrencies, central banks have quickly realized they cannot let the evolution of money pass them by.
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- 87 countries, representing more than 90% of global GDP, are looking at adopting a central bank digital currency (CBDC), according to Atlantic Council CBDC tracker. This is a massive jump just from 35 countries exploring this option in May 2020.
- 9 countries have already launched a digital currency, with Nigeria being one of the latest ones introducing the e-Naira.
- 14 other countries, including China and South Korea, are already in the pilot stages to prepare for an official launch.
…China…completed its CBDC development in 2019 and, at the beginning of January, began deploying its pilot versions of the digital yuan wallet application for Android and iOS in a mass testing…
…Jamaica is scheduled to roll out its own digital currency on a national level in the coming months after pilot-testing the project last year…[with] the goal of lowering transaction costs and providing financial services to citizens who do not have a bank account.
…India stated this week that it would be introducing a digital currency in the next financial year…to provide a more efficient and cheaper currency management system…[than] private cryptocurrencies, citing financial stability concerns.
…Jordan announced this week that it is researching launching its CBDC linked to the Jordanian dinar.
…Australia said in December that it is looking into adopting a digital currency. “If we do not reform the current framework, it will be Silicon Valley that determines the future of our payments system,” Treasurer Josh Frydenberg said in a speech. “These are significant shifts which we need to be in front of.”
The Bank of England is in an exploratory stage, stating back in November that a CBDC is unlikely to be introduced until at least 2025.
Cambodia launched its digital currency, the Bakong, in October 2020 and, by January 2022, nearly half the population was already using it…in stores or to transfer money via a mobile phone and does not require a bank account…
Mexico is planning to launch its own CBDC in 2024.
South Korea, Japan and Russia are looking at doing CBDC trials this year.
Iran is looking into the possibility of launching a CBDC pilot, with development already beginning back in 2018…
The U.S., the E.U, and Japan are also currently looking at a CBDC with the U.S. central bank lagging behind the other three.
Visa and Mastercard have also jumped on the CBDC bandwagon, offering a way for central banks to test various retail applications of CBDCs on their platforms…
Risks and benefits of a CBDC
@$A CBDC is a digital form of fiat money that a central bank issues and there are many well-known benefits to adopting one:
- cost-efficiency versus physical cash,
- better financial inclusion for the unbanked,
- and limiting illegal activity.
On the other hand, several serious risks exist, such as a possible run on banks, privacy, and cybersecurity risks…plus, with so many countries working on their own projects, standardization and interconnection are a major concern….
What the Fed is saying
In the long-awaited research paper released in January, the Federal Reserve outlined the pros and cons of introducing a CBDC…inviting the public to weigh in without taking a clear stance itself…
As the Fed sees it:
- the pros of a CBDC include
- safer and faster payments,
- improved cross-border payments,
- increased financial inclusion,
- and the preservation of the U.S. dollar dominance noting that were the new CBDCs to become more attractive than existing forms of the U.S. dollar then global use of the dollar could decrease and a U.S. CBDC might help preserve the international role of the dollar.
- the cons include
- changes to the structure of the U.S. financial system,
- concerns around the safety and stability of that system,
- potential impact on monetary policy,
- and issues around privacy and data protection noting that any CBDC would need to strike an appropriate balance between safeguarding consumer privacy rights and affording the transparency necessary to deter criminal activity.
After analyzing the report, Bank of America said that the U.S. could introduce a CBDC in 2025, adding that digital currencies “are an inevitable evolution of today’s electronic currencies.”
The above version of the original article by Anna Golubova (kitco.com) was edited [ ] and abridged (…) to provide you with a faster and easier read. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.