Eighty-one countries are dabbling with Central bank digital currencies as per news from a new tracker. The number has shown an increase of 46 countries as compared to last year. Apart from that, five countries have also launched their digital currencies.
Recently, the Atlantic Council’s Geoeconomics Center launched a new central bank digital currency or CBDC tracker. This tracker also had an interactive database.
The Geoeconomics center said that it was a “nonpartisan organization that consolidates the US leadership and engagement worldwide, in partnership with the allies and partners, and thus figures out solutions to global challenges.”
The original version of this CBDC tracker was launched in April last year. Since then, it has been used by the U.S. Federal Reserve and the Bank of International Settlements (BIS).
The center quipped that “ Amongst the countries which have the four largest banks, i.e., The U.S. Federal Reserve, The European Central Bank, The Bank of Japan and the Bank of England, the US is quite behind in its efforts on creating and developing a state-created digital currency.
The Federal Reserve Chairman Jerome Powell in February noted that the digital dollar was on high priority for the Fed. But he also said that it was vital that they got all the facts right. He also mentioned that they did not want to hurry into launching the digital dollar just to score over China’s digital yuan. However, Powell also said, “You would not require stable coins and cryptocurrencies if you had an established digital U.S. currency in place.”
As per the Geoeconomics center, until now, five countries have already launched their own digital currency. These are the Bahamas, Saint Kitts and Nevis, Antigua and Barbuda, Saint Lucia, and Grenada.
The center also mentioned that “14 more countries comprising major ones like South Korea and Sweden, are now in their pilot stage in creating their own CBDC’s and will be launching soon.
CBDC Tracker: Key Findings
81 countries (around 90% of global GDP) are thinking of launching a CBDC. In the previous report published in May 2020, only 35 countries were thinking of launching one.
China is the clear leader in this regard. It has allowed the foreign visitors to use the Digital Yuan provided they furnish their passport details to the People’s Bank of China. This is mandatory during the upcoming winter Olympics.
The United States is quite behind among the four largest central banks of the world.
Five countries have already launched their digital currency. The first among these was the Bahamian Sand Dollar.
Apart from that, 14 other countries, including economies like South Korea and Sweden, are already in the pilot stage in launching their CBDC’s.
However, without new standards and international coordination, the financial system may see a significant currency exchange problem in the coming years.
What Exactly Is A Central Bank Digital Currency (CBDC)?
The central bank issues a CBDC. With the increase in usage of cryptocurrency, the Central banks of most countries have realized that they should also offer an alternative currency as well.
CBDC or Central Bank Digital Currency is the digital Avtar of the primary currency of a country. With changing times, countries are no longer open to printing money. The central bank now issues e coins or accounts. All of them receive full faith and credit from the government.
How Is CBDC Different From Digital Currencies?
There are many virtual currencies existing which we also know as cryptocurrencies. They can be centralized, too, but we need to remember that Government does not support them. A classic example of this is the Facebook-initiated Diem. The fully decentralized version of the cryptocurrency comprises Bitcoins and their alternatives. Crypto runs on distributed ledger technology so multiple devices can verify the authenticity of that transaction.
Why Do Governments Want To Get Into Virtual Currencies?
There are many reasons to opt for virtual currencies, and that partly depends on the economic conditions of the country. As per the IMF, one reason for that is that CBDC’s are more cost-efficient than physical cash as they offer fewer transaction costs. Apart from that, they promote financial inclusion, which means that those who do not have a bank account can also access money on the phone. Virtual currencies can compete with the private companies that require incentives to limit illicit activities. They can also help in the smooth implementation of the monetary policy.
Challenges Of Rolling Out CBDC
There are many challenges, and each one of them should be scrutinized before the country launches its CBDC. Citizens may withdraw too much money out of the banks or purchase CBDC’s which banks cannot handle. Centralizing them through the government, the private systems may create protests from the users. Regulatory processes are not updated to deal with such large amounts of money, and therefore they should be made more robust before the countries implement this technology.