The central bank digital currency (CBDC) frenzy is seemingly reaching the point of no return. Over the next few years, more central banks look set to turn to these novel financial instruments as a principal payment device.
The majority of the CBDCs in development are retail iterations that are typically spendable, transferable and valuable digital cash.
Digital money that is trusted, convenient to use and widely available to people for carrying out transactions and getting paid would come with a host of benefits.
For starters, a central bank issued electronic money system would give financial watchdogs more insight into the movement of cash in the economy and aid authorities to crack down on money-laundering and terrorist-financing efforts.
Moreover, digital money would help millions of folks who are completely untethered to the current financial system to gain access to more financial services.
Many countries are now exploring ways to create a digital version of cash, especially in the wake of the pandemic, which has brought on a new urgency to find alternative contactless payment means.
China Leads the Race
China’s central bank has made steady advances in its objective to roll out the world’s first sovereign digital currency. Since last year, China has ratcheted up testing for its digital currency electronic payment (DCEP) to ward off potential competition from private cryptocurrencies such as Bitcoin.
China’s rapid testing of an experimental CBDC (the digital Yuan) demonstrates their dogged commitment to deploying next-generation tech to facilitate faster, easier payments that will eventually replace physical cash.
Recent reports indicate that The People’s Bank of China has just rolled out its first public test of the Yuan’s digital payment system.
The testing launched about two weeks ago in Shenzhen, southern China, where anyone can reportedly apply to join the program through the country’s four largest banks.
Bank of Canada Accelerates Research into CBDC
The bank of Canada seems to be next in line in the race to develop a sovereign CBDC, after recently advertising a job position for an experienced economist for digital currencies.
Canada has long looked into digital payment means and blockchain tech, with the head of digital currency research at the Bank of Canada reiterating the need to innovate so as to “stay in the game”.
Tim Lane, deputy governor of the Bank of Canada, sees the need to accelerate research into how a CBDC would work. The deputy governor had earlier said that there was no compelling case for a rush towards a national digital payments system, but his perspective has seemingly changed.
In the wake of Covid-19, Tim now notes that most activities are shifting to online platforms, hence the need to rapidly look into digital payments.
The US Steps Into the CBDC Race
The US Federal Reserve has started taking steps towards implementing instant payments via a digital dollar, which it hopes to roll out by 2023 or 2024.
According to the Wall Street Journal, Fed Chairman Jerome Powell recently stated that his agency remains interested in creating a digital dollar.
The CBDC efforts so far include research in partnerships with MIT and the BIS Innovation Hub. Moreover, the US has created a national research and experimentation program to develop a “hypothetical digital currency oriented for central bank use.”
That said, Powell cautioned on Monday that a “great deal of work” has to go into the launch of a digital dollar so as to reduce any inherent risks. It thus seems that the US isn’t about to spring a new digital dollar on the global economy at least for the next two or three years.