Global financial institutions continue to get an appeal towards CBDCs as the world integrates digitization and other technological innovations. Three to five nations worldwide are a minimum of those likely to exchange their current fiat currency with a financial institution digital currency (CBDC) by 2030, consistent with dGen.
DGen, a Dutch non-profit think tank, released a report entitled “CBSCs Geopolitical Ramifications of a Major Digital Currency.” The piece consisted of analyzing major global fiat currencies like the euro, U.S dollar, and China’s yuan. With support from top institutions such as the European Central Bank (ECB), Standard Chartered Bank, and the Frankfurt School, the report predicted the impact of CBDCs on the global economy.
However, dGen does not make an exact guess at the nations that will completely replace their national currency. Instead, it outlines significant progress in CBDC adoption by governments like the Bahamas and Sweden. They also noted that Sweden’s e-krona development is in line with its plan to go cash-free by 2025.
China’s CBDC Likely to Overtake Euro
According to the report, the euro is at high risk of losing its global economic position. China’s digital yuan project will overtake it if Europe does not develop its CBDC by 2025. It further stressed that ECB needed to establish a suitable environment for the digital euro’s prosperity and growth if they were to maintain its position.
Phillip Sandner, head of Frankfurt School Blockchain Center, criticized ECB for its apparent resistance to CBDC. He said that the ECB’s reaction is too slow. The benefits from CBDC for the industry are currently negligible, e.g., based on programmable money. If the ECB were to keep their geopolitical position, the need to react is dire.
Digital Yuan Is Not A Threat to the USD Currently
Launching the digital yuan will not overpower the U.S. dollar, at least not immediately, as dGen wrote. While China’s CBDC poses a threat to overtake the euro, it is unlikely to overtake the U.S. dollar. The political unrest in China and the effort of shifting invoices and reserves contribute to this.
By definition, a CBDC is simply the digital representation of fiat money issued by the central bank. It aims to provide cashless transactions, reducing associated costs, and speeding up payments. While China is the most active in CBDC development, other countries are beginning to explore this new financial tool. In early September, Brazil’s central bank announced that its citizens should expect CBDC before 2023.