Report on the Global Status of Central Bank Digital Currencies (CBDCs)

editorNovember 16, 2024

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Report on the Global Status of Central Bank Digital Currencies (CBDCs)

Central Bank Digital Currencies (CBDCs) are creating new opportunities for financial institutions and banks worldwide to interact.

The emergence of CBDCs has brought about significant changes in national financial systems and global monetary regulations. This technology has opened new avenues for interactions among governments, financial institutions, and banks. These structural and regulatory changes have sparked questions about the practical future of this type of currency, especially whether CBDCs could replace traditional cash in the short term.

Central Bank Digital Currencies (CBDCs) have been a topic of discussion for a long time and have largely faced negative opinions within the cryptocurrency community. However, some of these doubts stem from a lack of understanding about how these currencies function. Generally, CBDCs, which are distributed through blockchain technology, offer the potential for cheaper, faster, and likely more accessible transactions compared to traditional banking systems.

Distributing CBDCs via blockchain technology could have several advantages, including more effective countermeasures against illegal financial activities such as money laundering. These currencies could also be crucial in facilitating international trade and payments. However, whether the benefits mentioned outweigh the increased government control over citizens’ financial affairs and the risks associated with central bank errors is a matter that requires further examination and discussion.

This article addresses the concept of central bank digital currency (CBDC), how it works, and the benefits it offers to national financial systems. It will also explore the current global status of CBDCs.

What is a Central Bank Digital Currency?

“Central Bank Digital Currency” (CBDC) refers to a form of fiat currency issued digitally by a country’s central bank.

CBDCs are fully integrated into the traditional financial system and act as intermediaries for fiat currencies, with the backing of a trusted issuer, namely the central bank and, ultimately, the governing government or political authority. These digital currencies are inspired by blockchain technology, and many countries will likely adopt Central Bank Digital Currencies as digital money in the coming decades.

Central Bank Digital Currencies offer a new concept inspired by cryptocurrencies such as Bitcoin or Ethereum. These currencies are issued digitally by a country’s central bank, and their value is tied to the fiat currency approved by the relevant government.

Although CBDCs may seem inspired by decentralized cryptocurrencies like Bitcoin, they differ in many ways. Bitcoin is created in a decentralized manner, without control by any institution or government. At the same time, CBDCs are issued by governments and central banks and are subject to the laws of the countries involved. This distinction makes CBDCs more controllable and manageable, whereas Bitcoin is completely decentralized and independent.

How Does a CBDC Work?

Central Bank Digital Currencies (CBDCs) may have a distributed database like blockchain or lack it, but this feature alone is not enough to classify them as true cryptocurrencies. Due to being issued by the central bank, CBDCs do not have a decentralized nature, and this institution, similar to its role with fiat currencies, has complete control over the production and distribution of CBDCs. The value of CBDCs is tied to the public’s trust in the issuing authority, which plays a crucial role in the acceptance and popularity of these currencies.

However, compared to fiat money, CBDCs offer several advantages, such as sending transactions directly between two parties without needing a third-party payment intermediary. Due to greater government control, CBDCs can also contribute to the implementation of more efficient monetary policies.

Central Bank Digital Currencies are a symbol of government credibility and can also serve as a tool to increase efficiency and transparency in national financial systems. These currencies can incentivize younger and future generations to adopt digital money.

Benefits of CBDC Implementation for Countries

Some of the most important and effective advantages that the implementation of CBDC technology brings to countries include the following:

Tax Control

CBDCs facilitate real-time tax collection, automated auditing, and automatic public and private records integration. These features ensure streamlined and reliable financial operations, support better government resource management, and build public trust in tax systems through enhanced transparency.

Improved Cross-Border Payments

CBDCs significantly improve international payment processes by reducing dependency on intermediaries, minimizing transaction costs, and speeding up transactions. This reform addresses issues like high fees, slow processing, limited accessibility, and the need for greater transparency, optimizing cross-border payment experiences for individuals and organizations.

Combatting Corruption

CBDCs foster transparency in electronic transactions and enhance monitoring, effectively aiding anti-corruption efforts. Secure transaction logging allows corruption to be reduced, thereby strengthening government credibility with international organizations.

Investment Appeal

CBDCs improve economic transparency and significantly reduce risks for foreign investors. Issued and backed by the national fiat currency, these digital currencies represent a trustworthy investment option, enhancing their appeal to investors.

Countries in Favor of CBDC by 2018

According to the report, by 2018 and with the advent of the concept of central bank digital currencies (CBDCs), the countries that had expressed support for launching CBDCs included:

Senegal

Senegal was one of the first countries to create a central bank digital currency, introducing the blockchain-based eCFA cryptocurrency in December 2016. This CBDC was issued only by licensed financial institutions but expanded separately.

eCFA is a high-security digital tool that can be stored on any smartphone or digital wallet, providing global liquidity, collaboration, and transparency within the West African Economic and Monetary Union (WAEMU).

Tunisia

In 2015, Tunisia became the world’s first country to introduce a blockchain-based CBDC called eDinar. Developed by the Swiss software company Monetas in cooperation with the Tunisian government, eDinar is issued and distributed by a government entity called La Poste Tunisienne. -Johann Gevers, CEO of Monetas

The Marshall Islands

With a population of about 53,000 and free trade relations with the United States, the Marshall Islands used the US dollar as its official currency. However, in March 2018, the government introduced the idea of a CBDC named Sovereign (SOV), officially launched in late February. The related regulations were promptly approved, and David Paul, advisor to the president of the Marshall Islands, stated: “As a country, we have the right to issue any type of currency, including digital and fiat.”

Venezuela

In February 2018, Venezuela launched the Petro or Petromoneda CBDC to counter U.S. sanctions. This CBDC was backed by the nation’s oil, gold, and other minerals reserves. In December 2017, Venezuelan President Nicolás Maduro announced his intention to issue a cryptocurrency backed by these reserves, with 100 million Petros to be issued soon after.

Recently, however, Venezuela discontinued its CBDC due to a lack of public acceptance.

Countries Opposing CBDC

The list of countries that opposed the adoption of CBDCs includes:

Ecuador

Ecuador was an early leader in central bank digital currencies, introducing electronic money (Dinero Electrónico or DE) in 2014. However, by March 2018, Ecuador shut down this system and closed all accounts.

Estonia

Estonia considered creating a national cryptocurrency called Estcoin, but the project was canceled due to European Union regulations. The head of Estonia’s e-residency program initially proposed this idea. Still, Mario Draghi, president of the European Central Bank, clarified that eurozone members cannot introduce their own currency, as the euro is the designated currency.

Switzerland

In June 2018, Thomas Jordan, chairman of the Swiss National Bank, expressed skepticism toward supporting cryptocurrencies and blockchain technology, considering them insufficiently innovative. Earlier that year, Romeo Launcher, head of the Swiss Stock Exchange, suggested an electronic Swiss franc (e-franc) under the central bank’s control. In May, the Swiss Federal Council requested an analysis of the pros and cons of introducing a government-backed digital currency.

Hong Kong

Hong Kong maintained a transparent stance on CBDCs and, in May 2018, announced that it would not introduce a CBDC in the near future due to payment infrastructure issues.

Japan

In April 2018, the Bank of Japan rejected the creation of a CBDC. Masayoshi Amamiya, the bank’s executive director, believed that issuing such currency could negatively impact Japan’s financial system by allowing individuals and companies to hold direct accounts at the central bank, affecting private bank intervention in the economy.

The issuance of Central Bank Digital Currency for public use could allow individuals and companies to have direct accounts with the central bank. This could significantly impact the country’s existing currency system and the economic intervention of private banks. -Masayoshi Imamiya, Executive Director, Bank of Japan

Germany

On July 5, 2018, Germany’s government rejected issuing a CBDC due to concerns about excessive risks to the financial system.

Current CBDC Status Worldwide

Since 2018, the number of countries launching CBDCs has grown significantly. Nations like China, the U.S., Sweden, the UK, Canada, India, Thailand, Australia, Brazil, France, Nigeria, Switzerland, the Bahamas, Ukraine, Japan, Germany, Ecuador, Ghana, the Eastern Caribbean, and the Marshall Islands have all implemented pilot or limited-use CBDCs, showing the growing importance of digital currencies in global monetary policy.

The image below represents the latest status of Central Bank Digital Currencies in all countries worldwide.

According to this image, there are several facts about Central Bank Digital Currencies worldwide:

130 countries, representing 98% of global GDP, are exploring Central Bank Digital Currencies (CBDCs). In May 2020, only 35 countries were considering this option. Currently, 64 countries have reached a new milestone and are in advanced stages of exploration (development, testing, or launch).
19 countries from the G20 group are currently in advanced stages of CBDC development. Of these, 9 countries are in the testing phase. Nearly every G20 member has made significant progress in this area over the past six months and has invested new resources into these projects.
11 countries have fully launched a Central Bank Digital Currency. China’s CBDC trial, which currently reaches 260 million people, is in over 200 pilot programs, including public transportation and e-commerce.
The European Central Bank is on track to begin trials for the digital euro. More than 20 other countries are also taking steps towards testing their own CBDCs in 2023. Australia, Thailand, and Russia plan to continue their pilot programs. India and Brazil are expected to launch their CBDCs in 2024.
In the United States, progress on retail CBDCs has been delayed. However, the Bank of England, the Bank of Japan, and other G7 banks are developing their own CBDC models and consulting on privacy and financial infrastructure with both the public and private sectors.
However, the United States is making progress in wholesale CBDCs (bank-to-bank). Since the start of the Russia-Ukraine war and the G7’s sanction response, progress related to wholesale CBDCs has doubled. Currently, there are 12 major cross-border CBDC projects.

More than 70% of central banks worldwide are conducting research on CBDCs.

According to a report published by the Bank for International Settlements (BIS), most central banks are examining CBDCs, with more than half conducting practical tests or working on a prototype. The BIS report summarizes the findings from the latest survey of central banks regarding their views and plans for CBDCs. Responses from 86 central banks show that their activities related to central bank digital currencies have increased by 93%, with progress on retail CBDCs outpacing that of wholesale CBDCs.

The report also indicates that most central banks see future value in having both retail CBDCs and a fast payment system simultaneously. By 2030, up to 15 retail CBDCs and nine wholesale CBDCs could be in general circulation. This survey further reveals that, to date, stablecoins and other cryptocurrency assets have rarely been used for payments outside the crypto ecosystem.

List of countries that have launched or are in the testing phase of their CBDCs:

Bahamas (Central Bank of the Bahamas): Sand Dollar, launched in October 2020
Cambodia (National Bank of Cambodia): Bakong, retail CBDC, launched in October 2020
Antigua and Barbuda (Eastern Caribbean Central Bank): DCash, launched in March 2021
Grenada (Eastern Caribbean Central Bank): DCash, launched in March 2021
Saint Kitts and Nevis (Eastern Caribbean Central Bank): DCash, launched in March 2021
Saint Lucia (Eastern Caribbean Central Bank): DCash, launched in March 2021
Saint Vincent and the Grenadines (Eastern Caribbean Central Bank): DCash, launched in March 2021
Nigeria (Central Bank of Nigeria): e-Naira, launched in October 2021
Dominica (Eastern Caribbean Central Bank): DCash, launched in December 2021
Montserrat (Eastern Caribbean Central Bank): DCash, launched in December 2021
Anguilla (Eastern Caribbean Central Bank): DCash, launched in June 2022
Jamaica (Bank of Jamaica): Jam-Dex, launched in July 2022
Ghana (Bank of Ghana): e-Cedi
Sweden (Riksbank): e-Krona
Iran (Central Bank of the Islamic Republic of Iran): Digital Rial
Kazakhstan (National Bank of Kazakhstan): Digital Tenge
Russia (Central Bank of Russia): Digital Ruble
South Korea (Bank of Korea)
Saudi Arabia (Saudi Central Bank)
United Arab Emirates (Central Bank of the UAE)
Singapore (Monetary Authority of Singapore)
South Africa (South African Reserve Bank)
India (Reserve Bank of India): Digital Rupee
China (People’s Bank of China): e-CNY (Digital Yuan)
Japan (Bank of Japan): Digital Yen
Hong Kong (Hong Kong Monetary Authority): e-HKD (Digital Hong Kong Dollar)
Thailand (Bank of Thailand)
Australia (Reserve Bank of Australia)
France (Bank of France)
Brazil (Central Bank of Brazil): Digital Real
Uruguay (Central Bank of Uruguay): Digital Peso (e-Cedi)
Philippines (Bangko Sentral ng Pilipinas)
Turkey (Central Bank of the Republic of Turkey)
Norway (Norges Bank)
Venezuela (Central Bank of Venezuela): Digital Bolivar
Bahrain (Central Bank of Bahrain)
Bhutan (Royal Monetary Authority of Bhutan)

Future of Central Bank Digital Currencies (CBDCs)

The benefits of CBDCs are significant: lower transaction costs, faster settlement, and improvements in payment methods for billions of people. While implementing CBDCs may take several years, research is advancing quickly. Many countries have already introduced their CBDCs or are in advanced stages of development. Various influencing factors and future frameworks will shape the evolution of CBDCs as central banks worldwide continue experimenting with rapid technological advancements.

This article aimed to introduce you to the concept of CBDCs and provide updates on the current state of CBDCs worldwide.