Global adoption of the Central Bank Digital Currency (CBDC) has continued to heighten as several countries across the world spark up conversations around the burgeoning trend.
With the Covid-19 pandemic accelerating the trend of cashless payments and governments increasingly concerned about the rising popularity of Bitcoin and other private cryptocurrencies, many central banks around the world are now exploring developing their own digital currencies (CBDCs).
A recent survey of 65 central banks conducted by the Bank for International Settlements found that 86% were exploring CBDC issuance and about 60% were conducting a proof of concept.
CBDC has become a topical issue for Central Banks and Financial authorities beyond countries and across regions of the globe.
At continental level, a regional Central Bank Digital Currency is also being discussed as the case of the Eastern Caribbean. The regional central bank recently launched a regional CBDC for some of the countries in the Union.
Japan made the news on Monday as the Asian country announced that it has begun Phase 1 of central bank digital currency (CBDC) experiments.
Phase 1,2,3 of Japan’s CBDC
The first phase of experiments will focus on testing the basic functions of CBDC as a payment instrument, such as issuance, distribution, and redemption. The phase which is described as the “Proof of Concept (PoC)” would be run for a year after which other phases would follow before The Bank of Japan launches the digital currency.
After phase 1 success, the bank will move to phase 2 to test more detailed functions of CBDC, as it announced last October. If necessary, the central bank will move to Phase 3, in which private businesses and end-users will participate in a pilot program.
The Bank of Japan currently has no plans to issue a CBDC, but it wants to remain prepared if the need arises in the future, the central bank’s executive director Shinichi Uchida said last month.
Thailand sparks Central Bank Digital Currency conversation
Thailand’s central bank has announced plans recently to begin working on a Central Bank Digital Currency (CBDC) and how it would start test on the digital currency in 2022.
The bank in a press release asked residents of the country to give their opinion on the roadmap for the digital currency project. Thailand’s central bank also released a report which analyses the CBDC thesis. The report talks about why a digital currency is to be developed and that thriving private stablecoins.
Vachira Arromdee, the assistant governor of the financial markets operations group at the BoT, said the country needs a CBDC to improve access to financial services in the country.
U.S. approaching with caution
Jerome Powell, chair of the U.S. Federal Reserve, spoke about the U.S and its CBDC plans at the inaugural BIS Innovation Summit 2021.
He said the world power is approaching CBDCs with caution.
“Because we’re the world’s current principal reserve currency, we don’t need to rush this project and we don’t need to be first to market. A dollar CBDC would have potentially large implications here and around the world, and we’ll be sure to think carefully about all of that and engage very broadly with the public around the world, in particular here in the United States before we even approach a decision,” Powell said.
“We’re sort of purveyors of stability macroeconomic stability, price stability, financial stability,” Powell said. “We have a two-tier system: central banks interface with banks, banks interface with the public. And we do not want to destabilize that.”
The U.S. Federal Reserve is collaborating with the Massachusetts Institute of Technology on a multi-year effort to build a hypothetical digital currency for central bank use, with a focus on developing and understanding the capabilities and limitations of the relevant technologies.
“It’s not an attempt to create a prototype,” said Powell
China knocking at launch of digital yuan
China which is already at the final phase of its CBDC launch would officially roll out the currency on February 4, 2022.
However, the country recently announced that it would roll out more pilot schemes towards the launch of the currency.
China is a front-runner in the global race to launch central bank digital currencies and has held trials in several major cities including Shenzhen, Chengdu, Shanghai, and Hangzhou.