Many countries around the world are developing the infrastructure for central bank digital currencies or CBDC’s. These instruments will arrive in the form of a national virtual currency. Virtual currencies are a hot topic that has gained support in the agendas of international economic organizations and central banks. There are several countries that already have their own digital currency, while many others are studying the possibility of developing their own.
China Establishes Itself as the Early World Leader in CBDC’s
Despite taking tough measures against cryptocurrency trading and mining, China has established itself as the nation that has made the most progress in the idea of issuing its own CBDC, the digital yuan, a project it has been working on since 2014. The digital yuan was first issued by the People’s Bank of China in the first weeks of last April. This coin is still in a testing and development phase, however, some provinces in China are already paying some of their workers with digital yuan, including Shenzhen, Chengdu and Suzhou.
The currency is expanding in strategic cities of the country and within increasingly particular environments and use cases, mainly oriented towards the area of retail trade where citizens can make use of it to acquire goods and services, in addition to making payments of their daily life.
It was recently announced that the Chinese digital currency will be tested in the city’s rail transport, through the Beijing Metro System, where citizens can make payments with the digital yuan to use the service. In this sense, users who have enabled a wallet for the digital yuan in the Industrial and Commercial Bank of China (ICBC), may choose to access an experimental payment channel enabled in the Beijing Metro network, throughout 24 Metro lines and 4 suburban railways, using the digital yuan to pay for their trips through the Metro system application, E-Pass.
Fan Yifei, the deputy governor of the PBOC, in an interview last year mentioned “pressing need to digitalize cash and coin” because the production and storage of these coins and paper cash is expensive. The PBOC is also concern about the risk involved with the countries payment systems being dominated by Alipay, run by the Alibaba affiliated Ant Group, and WeChat Pay, run by the internet giant Tencent.
“The existing system is owned by private companies. Should Alipay or WeChat pay goes bankrupt, which is extremely unlikely, it creates systematic risk,” said Linghao Bao, analyst at Trivium China. “The biggest reason for them (the PBOC) to do this is to level the playing field. Another reason is maybe create a new platform payments system that will increase efficiency.”
Russia Assembles Twelve Banks to Test Digital Ruble
On the other hand, in Russia a total of 12 Russian banks will join the Central Bank of Russia (CBR) to start testing the digital ruble, says a recent statement from the entity. The first pilot phase will be dedicated to testing the issuance of the digital ruble through an infrastructure that is being developed by the Russian Central Bank. The idea is to start testing for the CBDC together with the group of banks in January 2022, says the country’s central bank. Also, more participants will be added as the initiative progresses.
Japan Jumping into the Action
Japan is also focusing on analyzing and experimenting with its own CBDC, a digital yen. Although it has not yet decided whether or not it will issue a digital yen in the short, medium or long term, the country expects that by 2022, when the CBDC tests progress to the next stage, there will be greater clarity on how the digital currency with the economic and banking environment of the country.
Bahamas and Other Caribbean Countries Joining In
The Bahamas also issued its own Sand Dollar digital currency in October last year and made it available to the archipelago’s nearly 393,000 residents. It is considered the first electronic currency of a country. In the Caribbean, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia and Grenada also have a digital currency, which not only circulates in each country, but can also be used in transactions to other countries where it also circulates.
DCash, issued by the Central Bank of the Eastern Caribbean, is the first blockchain-based currency introduced by a monetary authority in the world. In addition, it uses the same system for transactions made with cryptocurrencies such as Bitcoin. This project aims to put this currency into circulation in other islands of the region such as Anguilla, Dominica, Montserrat and Saint Vincent and the Grenadines by 2025, year in which a 50% reduction in the physical money that circulates between the island economies is also expected. of your jurisdiction.
Could We See a Digital Euro?
The European Central Bank has announced that it is working on a project for the creation of the Digital Euro, which could be ready in less than five years. In the same way, the Swedish central issuer said that it is working on a pilot project for the creation of an e-krona, but does not expect to finish the studies until 2026. Although countries like Germany have opposed the creation of the digital currency, the project still stands.
National digital money continues to gain strength as the days go by, more and more countries are joining this research for the creation of their own formula in the conception of their own digital currency backed by central banks. The intention is to prepare for a digitized future in the economy and payments, being also a response to the growing demand for Bitcoin and cryptocurrencies.