Status of central bank digital currencies – September 2023

A majority of the world’s central banks currently investigate whether to adopt national digital currencies, also known as central bank digital currencies (CBDCs), or not. 130 countries, representing 98 percent of global GDP, are exploring CBDCs. Let’s examine how different countries approach the matter.

When a country decides to issue a digital currency it is declared as legal tender, just like its fiat currency. Fiat money is government-issued money which is not backed by a commodity such as gold or silver. In short, the cash we use for our daily purchases. In this case, both the physical cash and the CBDC circulate in parallel. (Read more about the basics of CBDCs here)

Nine out of ten central banks are actively exploring CBDCs, according to the Bank of International Settlements. Transactions involving CBDCs could exceed 213 billion US dollars by 2030, forecasts by Juniper Research show. Most of these transactions will be carried out domestically, with cross-border payments coming at a later stage, as they are not in the focus of CBDC development.

“As CBDC adoption will be very country specific, it will be incumbent on cross-border payment networks to link schemes together; allowing the wider payments industry to benefit from CBDCs,” Juniper Research’s Nick Maynard said.

CBDCs in place in 11 countries, mainly in the Caribbean

Bahamas was the first one to issue its own CBDC in October 2020, named the Sand dollar. To date, a total of 10 countries have followed: Nigeria, Jamaica and eight other island countries in the Eastern Caribbean.

When it comes to larger economies, Japan is the only G7 member that is actively testing a digital yen. Its digital yen pilot scheme began in April 2023 and will last for several years.

China is also at the forefront of setting up a digital yuan, or e-CNY or digital RNM as it also is being referred to. There are now pilot projects running in 23 cities across 15 provinces, which means roughly 100 million people have digital yuan as a payment option. The value of the transactions carried out with digital yuan was 1.8 trillion yuan by the end of June 2023, which is equivalent to roughly 250 billion US dollars, the Chinese head of the country’s central bank, Yi Gang, said.

Another 16 countries, including Australia, India, Russia, Saudi Arabia, South Africa and South Korea are in pilot stages with their respective CBDCs and are preparing a possible full-scale launch. Pilot schemes involving digital rubles began in Russia mid-August. Thirteen banks and a selected group of clients are currently taking part, though the number of participants will be broadened by the end of the year.

US, a step closer toward banning an e-dollar?

 In September, the House Financial Services Committee voted in favor of two bills which effectively prevent the issuance of a US CBDC, even before a pilot scheme is developed: the Digital Dollar Pilot Prevention Act and the CBDC Anti-Surveillance State Act. The American Bankers Association (ABA) has also joined the ranks of the critics.

“A CBDC is unnecessary in the United States and would present unacceptable risks and costs to the financial system. Since the dollar is already digital today, it is not clear that issuing a CBDC would improve financial inclusion or achieve other laudable goals,” ABA said. This proposed law will now be debated and voted upon in the US Congress, where its future is unclear, “ ABA said in a statement.

Republican presidential candidate Ron DeSantis has also vowed to ban CBDCs in the US if he were to be elected. As for the US Federal Reserve (Fed), it has made no decision on issuing a digital dollar and would only proceed with the issuance of a CBDC with an authorizing law. If it were to go ahead despite the regulatory hurdles, the Fed says it will ensure “the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.”

Decision on introduction of a digital euro expected in October

 The European Central Bank (ECB) currently mulls the future of a potential digital euro and will make a key decision in October. The European Commission has been preparing the ground, publishing legislative proposals back in June regarding the introduction of a digital euro as a complement to physical euros or cash.

“It would ensure that people and businesses have an additional choice – on top of current private options – that allows them to pay digitally with a widely accepted, cheap, secure and resilient form of public money in the euro area (complementing the private solutions that exist today),” the Commission said.  

It is, however, up to the ECB to decide whether a digital euro will be issued and some of its member are enthusiastic. The digital euro would be “an opportunity, not a risk, for the European financial sector,” Fabio Panetta, a member of the ECB’s executive board said in September. 

The end of the ECB’s ongoing investigation phase ending in October 2023 is approaching. It then needs to decide whether to start testing and developing a digital euro or not. If a test phase is launched, it is scheduled to last for about three years. This does not mean that a digital euro will be issued automatically thereafter.

Brazil also in the development phase

Brazil’s digital real will be called Drex, the country’s central bank announced in August. The onboarding of 16 participants taking part in the Piloto Drex began a month earlier.

Switzerland sees no interest in a national CBDC

Switzerland is going in a similar direction to that of the US. Its central bank sees no need for a digital franc for the public. The country is nevertheless a leading financial and technology center. Last year, it was home to a large number of blockchain-related startups with nearly 6,000 employees in more than 1,100 companies. Lykke is one of these.