Amid the growing popularity and adoption of cryptocurrencies, authorities across the globe have woken up to the reality that digital assets are the future of money and value. In a bid to avoid falling behind, countries have begun to develop their own digital currencies, identified as the Central Bank Digital Currencies (CBDCs) as an alternative to fiat. Worthy of note that these assets share similar features with cryptocurrencies and stablecoins. The major difference is that they are centralized because their issuance is done by the apex banks in each country.
Countries that have completed or started the development of their CBDCs
As of today, more than seventy countries have either concluded or started the development of their CBDCs. According to findings, the first country to complete the development of its CBDC is Bahamas. Remarkably, the country launched the asset, identified as Sand Dollar in 2020. According to the Apex bank in the country, Sand Dollar brings speed, efficiency, and security to payments.
In the following year, one of the largest countries in Africa, Nigeria also launched its own CBDC, named E-naira. By virtue of this, the country became the second country to launch its nation-based digital currency after Bahamas. As a measure towards fostering the adoption of E-naira, the Central Bank of Nigeria reduced the daily cash withdrawal limit.
Meanwhile, countries like India, Australia, China and others are currently making progress in the development of their CBDCs. In India for instance, its apex bank is currently making efforts towards launching digital rupee. According to the finance minister, Nirmala Sitharaman, the project is currently at its trial stage. Sitharaman believes digital rupee will help stimulate the economy of the country.
The situation is almost the same in China. In 2022, its apex bank also unveiled the pilot of its CBDC, known as e-CNY. During its trial, e-CNY emerged as the most issued token in a $22 million pilot geared towards exploring CBDCs for cross-border settlements. Worthy of note that the People’s Bank of India aims to secure massive domestic adoption of the token when launched for public usage.
European Union to launch CBDC soon
It is interesting to note that the development of CBDCs have even gone beyond the shores of individual countries. As of press time, the European Union is also making efforts to develop its CBDC, called digital euro. According to the President of the European Commission Bank, Christine Lagarde, the CBDC will function in at least twenty out of its twenty seven member states. Our findings show that the bill to foster the implementation of the asset will materialize this year.
Drivers for the introduction of CBDC
As the reality of virtual payment becoming the future of finance began to dawn, Financial institutions gradually introduce different innovations to jump on the trend. One of these attempts led to the introduction of CBDC. The introduction of this innovation gained more recognition due to the perception that it will ease payment processes. More so, the drivers behind the introduction of CBDC vary from country to country. Depending on Goverment policy and objectives.
Among the major reason for the introduction of CBDC is financial inclusion. According to findings, a Central Bank Digital Currency can be an effective tool to promote financial inclusion. Using a CBDC provides users to carry out financial transactions even without having a bank account. Also, they can anchor cross-border payments, providing people with a cheap, faster and secure way of transferring remittances.
Another driver for the introduction of CBDC is the attempt to mend the shortcomings of the orthodox virtual payment systems. The failure of traditional virtual payment systems to address financial stability, execution of monetary policy and effective government payment led to the introduction of CBDC.
Opposition to cryptocurrency
Further insights into the motivation behind the introduction of CBDC unravelled what’s perceived to be a strong opposition to cryptocurrency. The lockdown measures introduced during the 2020 Covid-19 pandemic boosted the usage of virtual transactions with cryptocurrency at the middle of the development.This boost led to the crypto boom of 2021 that saw major cryptocurrencies enjoy massive rallies. With the increase in the global usage of cryptocurrency, regulators around the globe were greeted with the reality that crypto has come to stay.
However, instead of providing an enabling environment for the industry to strive. Apex banks around the globe began to introduce CBDCs as an alternative to crypto. Apex banks that have opposed cryptocurrency at a point cited its decentralization as a major deficiency. These financial institutions introduced CBDC to provide virtual payments options for their citizens, while preserving the centralization of their finance system. Lastly, CBDC for Central Banks is an effective mechanism of staying relevant amidst the growing adoption of virtual payments across the globe.
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