Central Bank Digital Currencies, or CBDCs, have likely become a more popular topic of conversation if you follow the cryptocurrency, DeFi, or overall landscape of blockchain-related activities in the past year.
Recently, countries all around the world have been vigorously testing the Central Bank Digital Currency (CBDC) waters. Though, only 35 nations were exploring a CBDC as of May 2020. However, 105 nations—representing more than 95% of the global GDP—were investigating a digital currency that was supported by the central banks by the middle of 2022. 19 of the G20 nations have a CBDC under analysis.
Attached below is a visual representation of the situation as of November 30, 2022. Especially, most nations are presently involved in exploring research, proof-of-concept testing, or pilot testing.
A Threat to Cryptos: CBDCs
according to a Central Bank of Bahamas research document from Q3 2022, between a CBDC and financial inclusion, CBDCs are very important for financial inclusion as there is a positive link.
However, people all across the world have been weakening their reliance on currency as the digital tendency has been developing quickly, and having electronic copies of other currencies would certainly come in helpful in this situation. Additionally, a fostering adoption will greatly benefit from the low volatility factor.
Howsoever, there are uncertainties that cryptocurrency’s method of payment may be in danger in the future. Anastasia Kor, the CMO and board member of the cryptocurrency company Choise.com, explained the situation in a textual commentary to Watcher Guru, stating, The emergence of CBDCs could spell the end of cryptocurrencies for authoritarian governments like China, but experts generally envision a future were crypto and CBDCs can coexist.
In her opinion, “many operators” will favor the decentralized nature of privately produced digital currencies over the centralized nature of centrally backed e-currency since it brings with it “confidence and liberty.”
A well-known Indian blockchain expert, Pushpendra Singh, also emphasized the centralized and decentralized components and while speaking with Watcher Guru, he claimed that he did not see CBDCs as any danger to the cryptocurrency ecosystem.
Are all the birds congregating in one place?
Ultimately, the Bahamas are regarded as being at the lead of the CBDC development globally following the debut of Sand Dollar, its CBDC, in October 2020 and It was the first realm in the area to familiarize a digital currency backed by a central bank.
Jamaica launched the JAM-DEX, making it the most recent nation to do so, this summer. Parallelly, the Central Bank Digital Currency was legalized by the Bank of Jamaica (BoJ), composing it equivalent to cash.
Somewhat, China is also ahead of the competition with the beginning of its first CBDC trial series in April 2020. According to reports, 261 million people have created digital wallets for the e-CNY as of January 2022, and more than $13 billion worth of transactions had been made with the digital currency available to overseas athletes competing in the Beijing 2022 Winter Olympics.
Rapid progress has also been made in testing real-world use cases and using CBDCs for settlements. Recently, France and its neighbor Luxembourg took part in a test of tokenized financial markets. To pay a bond for 100 million Euros [$104 million], the two countries developed an experimental CBDC. A well-designed CBDC might play a “vital role” in the establishment of a secure tokenized financial asset sector in Europe, according to the general director of the French central bank.
For its part, the Bank of Japan intends to begin testing the Digital Yen CBDC in the first quarter of 2023. Therefore, the central bank’s strategy is to test the digital pilot for two years before deciding whether to continue with the issuance in 2026.
For its CBDC Project, Singapore has concurrently worked with the central banks of France and Switzerland. According to recent reports, the MAS has started its journey to investigate the potential of CBDC for international trade. The nation’s central bank later designated the aforementioned project as Ubin+.
Current Situation in India
One of the most recent nations to jump on the testing and trialing bandwagon in India. The aforesaid Asian nation recently began testing its retail digital rupee (ex-R) on December 1.
More than a few other notable nations are well ahead of us in the CBDC competition and Kor gave Watcher Guru his view on whether India was in a disadvantageous position.
As the development team has learned from other central banks from across the world that has carried out their experiments, the Reserve Bank of India’s CBDC study is timely.
In reality, Singh agreed with him and believed that India could strategically benefit from both the advantages and disadvantages of the models and designs of other countries.
However, Singh also emphasized how extremely popular the Unified Payments Interface, or UPI, was in India and believed that CBDCs will eventually surpass the mentioned payment method, Singh continued, though, by stating that adoption would take time. In a similar vein, Kon continued, that the Reserve Bank of India has always been thoughtful, and without a doubt, the future will vindicate the reasons why the trials were delayed up to this point as would be seen in how the Digital Rupee uplifts the local economy.
Ultimately, some retailers have already begun letting customers pay for their goods and services using the CBDC and in fact, in a recent interview with the Economic Times, the proprietor of the store chosen for testing the CBDC expressed his view that because the Reserve Bank of India was involved, the money would remain secure in the digital wallet.
The ongoing research and pilot testing phases being carried out by several nations worldwide will probably be followed by future back-to-back launches, keeping in mind the success done thus far. The torch-bearers can serve as an inspiration to the nations now in the pre-launch phase. But whether or not that all the many monetary types would be able to coexist successfully depends on the time.