As the world continues to turn increasingly digital, we are seeing various governments around the world are hard at work developing digital currencies. Often referred to as ‘central bank digital currencies’ or ‘CBDCs’, these digital counterparts to each nation’s FIAT currency hold various benefits.
Today, we take a brief look at some of the recent progress being made by countries leading the way in CBDC development.
A Sand Dollar is the name of a type of urchin readily found in the warm waters near the equator. These creatures are given their name due to their appearance, resembling a coin made of sand. As such, it is fitting the Bahamas has coined its upcoming CBDC as the ‘Sand Dollar’.
The sand dollar project is often overshadowed by the progress being made on the digital yuan – the latter is, after all, a product of the world’s second-largest economy. In reality, the sand dollar was one of the first CBDCs to be released. While only used within the confines of its borders, officials at the Central Bank of Bahamas have recently indicated that it will soon be able to be used throughout the world.
While China may be overshadowing progress in the Bahamas with the public trial of its CBDC, it is believed that the Sand Dollar will eventually become the first to be released officially on a global scale.
To date, Canada has taken a more trepidatious approach to CBDCs than most. While other nations have already deemed a CBDC as the way forward, Canada has decided to wait and see how these projects function.
“The Bank of Canada is engaged in a large-scale research program to analyze the risks and opportunities of these new developments. A key part of this program is the monitoring framework for money and payments and the contingency planning for a central bank digital currency (CBDC). This is a program of major social significance and will require us to break new ground.”
Although the Bank of Canada has indicated that it will be ready for a CBDC when the time comes, it appears as though it is ramping up its research into their use. This was recently made evident, as job postings were made public, looking for an Economist well versed in blockchain to spearhead its research.
Without a doubt, China is one of, if not THE leader in CBDC development. Dubbed the digital Yuan, China’s CBDC has already entered a public testing phase.
This test saw the People’s Bank of China distribute 10M digital Yuan ($1.5M USD) in the form of a lottery in mid-October, to residents in Shenzhen. In this test, thousands of local merchants were fitted with the capability to accept the newly distributed digital Yuan. Early reports indicate a mixed reaction, with polled users citing a lack of convenience, incentive, and poor timing as issues surrounding the digital Yuan.
While this may simply be a testing phase and not an official launch, it demonstrates clearly that China is at the forefront of development with regards to a CBDC.
Not all nations are creating central bank digital currencies out of want, but out of necessity. One of the fears associated with CBDCs is the potential ability to help nations skirt around imposed financial sanctions. This fear was just given more credence by Russia itself, as The Bank of Russia is reported to have explicitly cited this potential as a reason for the development of a digital Ruble.
Although Russia has not made a final decision on whether or not it will release a CBDC, it appears increasingly so that this will be the case. As it stands, a Russian CBDC is expected to be structured as essentially a government-backed stablecoin, with each digital ruble backed by traditional rubles.
If one thing has been made clear over the past few months, it is that CBDCs are no longer a possibility, they are now actively being developed by governments around the world. Within the next few years, we will likely see several of these currencies in “circulation”. As a result, the world’s largest economy (United States) needs to be prepared, as these CBDCs hold the potential to reduce the rest of the world’s reliance upon the U.S. dollar – a stance recently shared by Deutsche Bank.
“Adoption of CBDC in key bilateral trading relationships could erode the dollar’s primacy in the global financial market.”