While a mere year ago it would seem far fetched that the majority of world governments would consider launching a central bank digital currency (CBDC), that is now exactly the case. Over the past week, various developments took place, highlighting the imminent arrival of such assets.
Known as ‘Ground X’, this company was the successful bidder in a recent partnership proposal put forth by the Bank of Korea (BoK). As the winner, Ground X is scheduled to provide the bank with technological solutions over the course of 10 months.
This partnership is expected to maintain an early developmental focus on research and test, while later stages delve in to privacy standards.
While Korea may be tapping in to services on offer by Ground X, Nigeria has opted to utilize the popular Hyperledger Fabric. In a recent webinar, representatives of the Central Bank of Nigeria (CBN) indicated that the project – known as ‘GIANT’ – is expected to launch by October 1st, 2021.
While initial plans for a Nigerian CBDC were first confirmed in June, CBN representatives have stated that research into a potential CBDC has been in the works since 2017.
Although many nations are considering the launch of a CBDC, each has specific needs and reasoning behind such a move. For Nigeria, representatives of the CBN have stated that a primary goal of such a move is to overhaul the remittance industry, while supporting financial inclusion among its populace.
In the world’s second most populated country, India, a CBDC may also be on the horizon. Recently, representatives from the Reserve Bank of India (RBI), indicated that it was in the process of developing such an asset through a multi-stage approach.
In a recent statement, Deputy Governor T Rabi Sankar, of the RBI, addressed multiple reasons why a CBDC makes sense moving forward in India.
“There is thus a unique scenario of increasing proliferation of digital payments in the country couple with sustained interest in cash usage, especially for small value transactions. To the extent the preference for cash represents a discomfort for digital modes of payment, CBDC is unlikely to replace such cash usage. But preference for cash for its anonymity, for instance, can be redirected to acceptance of CBDC, as long as anonymity is assured.
India’s high currency to GDP ratio holds out another benefit of CBDCs. To the extent large cash usage can be replaced by CBDCs, the cost of printing, transporting, storing and distributing currency can be reduced.
The advent of private virtual currencies (VCs) may well be another reason why CBDCs might become necessary…Developing our own CBDC could provide the public with uses that any private VC can provide and to that extent might retain public preference for the Rupee. It would also protect the public from the abnormal level of volatility some of these VCs experience.”
“The case for CBDC for emerging economies is thus clear – CBDCs are desirable not just for the benefits they create in payments systems, but also might be necessary to protect the general public in an environment of volatile private VCs.”
Interesting to note is the acknowledgment that private VCs pose a threat, and that it hopes a CBDC would act as a suitable alternative for these increasingly popular assets. This sentiment remains in line with the RBI’s previously demonstrated clear stance against private virtual currencies such as Bitcoin. It would appear that it now views a CBDC as a means of fending off their proliferation, by offering much of the same benefits – albeit in a centralized and controlled manner.