Recently, countries all around
the world have been vigorously exploring the Central Bank Digital Currency
(CBDC) waters. Only 35 nations were exploring a CBDC as of May 2020. However,
105 nations—representing more than 95% of the world Gdp investigating a digital
currency supported by the central banks by the middle of this year. In fact, 19
of the G20 nations apparently have a CBDC under analysis.
Attached below is a visual
representation of the situation since November 30, 2022. Notably, most nations are presently engaged in research, proof-of-concept
testing, or pilot testing.
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| CBDC Status | Source: CBDC Tracker |
What effect will the introduction of CBDCs have on cryptocurrencies?
For their part, CBDCs are very
important for financial inclusion. There is a "positive link,"
according to a Central Bank of Bahamas research document from Q3 2022, between
a CBDC as well as financial inclusion.
People all across the world have
already been diminishing their reliance on currency as the digital propensity
has been developing quickly. Having electronic copies of other currencies would
certainly come in helpful in this situation. In addition, fostering adoption
will greatly benefit from the low volatility factor.
However, there are worries that
cryptocurrency's "method of payment" may be in danger in the future.
Anastasia Kor, the CMO and a board member of the cryptocurrency company
Choise.com, explained the situation in a textual remark to Watcher Guru,
stating,
"The emergence of CBDCs could spell the end of cryptocurrencies for authoritarian governments such as China, but experts generally envision a future in which crypto and CBDCs can coexist."
In her opinion, "many users" will favor the decentralized nature of privately produced digital currencies so over the centralized nature of centrally backed e-currency since it brings with it "confidence and freedom."
Pushpendra Singh, a well-known
Indian blockchain expert, also emphasized the centralized and decentralized
components. When speaking with Watcher Guru, he claimed that he did not see
CBDCs as a danger to the cryptocurrency ecosystem.
Are the birds assembling in a flock?
As a result, the Bahamas are
regarded as being at the forefront of CBDC development globally following the
debut of Sand Dollar, its CBDC, in October 2020. In fact, it was actually the
first nation in the area to introduce a digital currency backed by a central
bank.
This summer, Jamaica launched the
JAM-DEX, making it the most recent nation to do so. In parallel, the Central
Bank Digital Currency was legalized by the Bank of Jamaica (BoJ), making it
comparable to cash.
China is also somewhat ahead of the competition with the beginning of its first CBDC test series in April 2020. According to reports, 261 million people have created digital wallets again for e-CNY since about January 2022, and more than $13 billion value of transactions had been made. The digital currency was also made available to overseas athletes competing in the Beijing 2022 Olympic Winter games.
The Bank of Japan, on the other
hand, plans to start experimenting with the Digital Yen CBDC in the first half
of 2023. In light of this, before deciding whether to move forward with the
circulation in 2026, the central bank plans to test only with a digital pilot
over a two-year period.
Singapore has concurrently
collaborated on the CBDC Project with the Swiss and French central banks.
Recent sources state that the MAS has begun its investigation on the potential
of CBDC for international trade. Later, the aforementioned project was given
the Ubin+ designation by the country's central bank.
Current Situation in India
One of the most recent nations to jump on the testing and trialling bandwagon is India. In fact, the aforementioned Asian nation only recently began testing the retail digital rupee (ex-R) from December 1.
India’s #CBDC e₹ (Digital Rupee) is finally here 🔥 pic.twitter.com/gUyQkwR3II
— Keyur Rohit (@CryptoKingKeyur) December 1, 2022
Evidently, a number of other
notable nations are well ahead of us in the CBDC competition. Kor gave Watcher
Guru his opinion on whether India was in a disadvantageous position.
Since other central banks across
the world have already completed their own experiments, the Reserve Bank of
India's CBDC study is timely, according to the development team.
In reality, Singh agreed with him
and believed that India could effectively benefit from both the advantages and
disadvantages of other nations' models and systems.
Singh also emphasized how
"extremely popular" the Unified Payments Interface, or UPI, was in
India. He believed that CBDCs will eventually surpass the mentioned payment
method. Singh continued, though, by stating that adoption will take time. He
went on to say more, saying,
"A CBDC might fundamentally
alter the way the Indian financial sector is structured. CBDC can lower
transaction costs and replace UPI, but adoption will take some time.
In a similar vein, Kon continued,
The future will surely explain the reasons why and how the trials were postponed up to this point, as will be seen in how well the Digital Rupee uplifts the local economy, according to the Reserve Bank of India, which has always been prudent.
As a result, a few retailers have already begun letting customers pay for their products and services using the CBDC. In fact, in a new conversation with the Economic Times, the proprietor of the store chosen for testing the CBDC expressed his opinion that because the Reserve Bank of India was involved, money would remain "secure" in the digital wallet.
India's CBDC: How to buy a cup of tea with e-Rupee? Watch #CBDC | #DigitalRupee https://t.co/529cKSq5Ty pic.twitter.com/lfA05o3ZfL
— Economic Times (@EconomicTimes) December 1, 2022
Conclusion
Considering the advancements made
thus far, it is anticipated that future back-to-back launches will be followed
by the continuous research & pilot test phase being carried out by many
nations worldwide. The torch-bearers can serve as an inspiration to nations now
in the pre-launch phase. But whether or not all the many monetary types would
be able to coexist successfully depends on time.
