Central Bank Digital Currencies (CBDCs) — A Map of the World
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Central Bank Digital Currencies (CBDCs) — A Map of the World

Created 2yr ago, last updated 1yr ago

Central bank digital currencies are being talked about all over the world — CMC breaks down what exactly each country is doing (or not doing!) with their CBDCs.

Central Bank Digital Currencies (CBDCs) — A Map of the World

Table of Contents

What is Digital Currency?

Distinct from decentralized cryptocurrencies like Bitcoin, a central bank digital currency (CBDC) is issued by a central bank, whose status as legal tender is established through government regulation or law. 
CBDCs remain within the traditional financial system, which are backed by the trust in the currency’s issuer – the national bank and sovereign government or political authority behind it. This differs from cryptocurrencies, which roots itself in decentralization and immutability, where control lies outside the central governing bodies. Read more in our deep dive on what CBDCs are.

A Bank of International Settlements (BIS) study in January 2020 revealed that 80% of worldwide central banks are engaged in CBDC-related research.

Bahamas CBDC – Sand Dollar

The Bahamas issued its "Sand Dollar" in October 2020

The Central Bank of the Bahamas began the gradual national rollout of its digital version of the Bahamian dollar, the Sand Dollar, on Oct. 20, 2020. 

The currency is expected to be the world’s first retail CBDC. It marks the culmination of years of work through the country’s Payments Systems Modernization Initiative, which began in the early 2000s.

The first phase of the Sand Dollar’s rollout will focus on “immediate readiness'' in the private sector, involving the rollout of three tiers of authorized Sand Dollar accounts, each subject to different levels of Know Your Customer (KYC) due diligence. 

This means Bahamians can open: 

  • “low-value” personal wallets, which have low transaction limits and are subject to looser KYC compliance; 
  • regular, personal accounts that follow KYC obligations in line with traditional banking due diligence;
  • enterprise or high net worth individual accounts, subject to more rigorous KYC checks, which offer higher limits for transactions and holdings.

The central bank’s focus on private stakeholders will extend until Q2 2021. 

A parallel phase, focused on the sand dollar’s integration into government services and utilities, will intensify throughout Q1 and Q2 2021.

The central bank has clarified that the digital currency, unlike cash, will not be anonymous and will be linked to an anti-money laundering and counter financing of terrorism (AML/CFT) regulatory regime. 

However, it has assured Bahamians that the currency’s infrastructure “incorporates strict attention to confidentiality and data protection. Each wallet provides a unique set of data encryption to ensure privacy and confidentiality.”

Central Bank governor John Rolle has unequivocally told reporters that with the Sand Dollar:

“We're looking at a digital representation of our currency. It's not a different currency; it's the same currency. In law, it will never be different. It can't differ in value in any way or the other so Sand Dollars can never be priced differently from Bahamian dollars.” 

Another key concern for the Bahamas is ensuring the Sand Dollar’s offline functionality. The central bank’s head of banking has recently said this aspect is “critical” and a “key strategy” for the forthcoming CBDC, citing the electricity and cell phone network outages during Hurricane Dorian.

While its initial rollout will be for use in domestic payments, the Central Bank of the Bahamas is apparently working on a solution that will make the Sand Dollar interoperable with other global digital currencies.

Brazil Digital Currency

Brazil’s financial system will be CBDC-ready by 2022

The Banco Central do Brazil set up a dedicated intergovernmental group to assess the impact, benefits and risks of a future CBDC in August 2020. As of September 2020, the group was expected to be ready to present their findings within 6-12 months.
In September 2020, the central bank’s president Roberto Campos Neto said that Brazil had already modernized its financial system in such a way as to pave the way for a CBDC by 2022:

“To have a digital currency, you need an instant payment system that is efficient and interoperable; an open system, where you can create competition; and a currency that has credibility, is convertible and international. After that, I think you have all the ingredients to have a digital currency. We think we [in Brazil] will have this in 2022.”

Notably, the Brazilian Instant Payment Scheme (PIX) — which has conditionally launched at the time of writing with plans to fully launch by the end of November 2020 — supports peer-to-peer and business-to-business transactions in 10 seconds or less, via mobile phone, internet banking and select ATMs.

In wording that closely parallels the Bahamian central bank governor John Rolle, Campos Neto has summarized a CBDC as relying on national trust, unlike Bitcoin, and therefore “just a new form of representation of the currency already issued by the national monetary authority.”

Canada CDBC

Canada has a CBDC ‘contingency plan’ underway

The Bank of Canada (BoC) is one of seven major international central banks to collaborate with the Bank of International Settlements (BIS) on preparing a report laying out the requirements for a future CBDC.
Canada’s central bank has made it clear it’s taking the prospect of CBDC seriously: in February 2020, BoC said that it would consider launching a CBDC if certain scenarios materialize, or appear likely to.

The two main scenarios it anticipates are: 

  1. a precipitous decline in the use of bank notes, to the point where they become unviable for everyday transactions; 
  2. the launch of a private sector-issued digital currency, which would compete with the Canadian dollar as money (method of payment, store of value and unit of account).  

The BoC now has a major contingency plan underway, which will ensure the bank is ready — both in terms of policy and operationally — to launch a CBDC relatively quickly if needed.

A job listing for a CBDC project manager was posted in June 2020, seeking someone to take the helm of a CBDC pilot system at the BoC for a three-year period. 

The listing did not offer insights into which technologies might underpin a future digital currency in Canada, though the project outline focused on key parameters for consideration: balancing user privacy with compliance, cash-like convenience and wide accessibility. 

Prior to its CBDC contingency plan, Canada initiated an ambitious and collaborative research initiative called Project Jasper in 2017. It has focused on public-private cooperation on experiments with distributed ledger technologies (DLT), particularly in the field of wholesale payments: for example, clearing and settling high-value interbank payments. 

The Bank of Canada’s partners over the different phases of Jasper have included R3, Payments Canada, Accenture, the Monetary Authority of Singapore, JP Morgan and the Bank of England.

China CDBC – Digital Yuan

China’s CBDC is already being trialed in major cities

China is expected to become the first major global economy to launch a CBDC, having devoted five years to its research and system development. Formally named DCEP — or digital yuan — the currency has already been piloted in major cities and key economic regions. 

In early October, the city of Shenzhen airdropped 10 million yuan ($1.47 million) worth of the digital yuan, in 50,000 traditional gift “red packets,” (but in this case, digital) each containing 200 yuan ($30) in DCEP.

The airdropped digital currency, accessible through an official Digital Renminbi App, could be spent in designated shops for a week-long  period. It was not transferable to other citizens nor to regular bank accounts.

You can read a detailed article on the DCEP’s history, current insights and likely future here.

Ecuador CDBC – Dinero Electrónico

Ecuador has already issued — and withdrawn — a CBDC

Ecuador issued the world’s first ever central bank electronic money, announcing its plans to issue dinero electrónico (DE) as early as 2014. 

The digital currency became usable in February 2015. Consumers kept account balances on the Ecuadorian Central Bank’s balance sheet and transacted DE using a mobile app. However, after less than three years, the electronic currency system was shut down. Account holders were told they had until the end of March 2018 to withdraw their funds. 

Having emerged against a backdrop of hyperinflation (1999) and subsequent dollarization of the national economy, the government attempted to calm fears that DE was a stepping stone towards de-dollarization. It therefore made the system voluntary, rather than mandatory, in 2014.

The actual number of accounts opened in 2015 ended up being less than 5,000; in January 2016, it was estimated that use of the DE corresponded to less than 0.003% of the monetary liabilities of the Ecuadorian financial system.

While originally intended to benefit the un- and underbanked population in the country, the system’s ultimate lack of popularity proved to be its Achilles heel.

Given that the Ecuadorian government had defaulted on sovereign dollar-denominated bonds in 2008, some argued that citizens perceived that dollars on deposit at the central bank money was less secure than those at private, commercial banks.

Amid apparent mistrust of DE, and citizens’ persistent preference for the U.S. dollar, use of the system peaked at just $11.3 million in account balances, with a total value transacted over the entire lifecycle of the system only $65 million. 

Eurozone CBDC – Digital Euro

The Eurozone sees CBDCs as a matter of ‘strategic autonomy’
Europe has picked up the pace of its CBDC research during the coronavirus pandemic, with the publication of a major and comprehensive report in October 2020 that outlined the scenarios and possible requirements for a future digital currency – the digital euro. 

The European Central Bank has made it clear that it will come to a decision on whether or not to launch a digital euro project towards the middle of 2021.

In its appeal to the general public for feedback on its October report, the ECB proposed that CBDC issuance could cushion the impact of extreme events, like pandemics or natural disasters, which could bring traditional payments services to a halt.

Beyond disaster-readiness, the ECB has pitched the digital euro as a matter of “strategic autonomy” for the Eurozone, at a time when evolving digital means of payments from overseas providers could prospectively “undermine financial stability and monetary sovereignty in the euro area.”

Europe indeed took a hard line against Facebook’s proposed Libra project, warning that no global stablecoin would be allowed to operate in the European Union (EU) without a resolution of the legal, regulatory and oversight risks involved. 

Hostility to Facebook’s cryptocurrency ambitions overlaps with the bloc’s ambitions to restore the “technological sovereignty” perceived to have been lost to global tech giants in recent years, and the EU’s pioneering of more stringent data protection laws to protect citizens in the digital era.

The ECB’s report covers both disintermediated, intermediated and hybrid models of a digital euro. The first category of the digital currency, which would not require a central bank or middleman to process every transaction, would offer better provisions for data privacy, according to the ECB, while an intermediated version offers more potential for integration with existing services.

Key areas for consideration raised in the report weigh privacy and cash-like features against the need for anti-money laundering compliance, also framed as a balance between individual rights and the public interest; the creation of back-up systems to make the digital euro resilient amid “extreme events,” and the potential use of the digital currency overseas. 

European central bank executives have made it clear that they are unlikely to adopt blockchain technology as infrastructure for the currency, noting that the ECB or European central banks would serve as the trusted central party for a future digital euro system. 

The one explicit mention of distributed ledger technologies outside the realm of crypto assets (which the ECB evokes in order to illustrate their essential difference from CBDCs) in the ECB’s report is a footnote in reference to various privacy architectures that could be implemented for select scenarios. 

Existing regulations in Europe do not allow for the anonymity of electronic payments, as distinct from cash, and any future digital euro would be expected to comply with this principle.

France Virtual Currency

France warns that Europe has just 1-2 years to decide on a CBDC 

A key player in the Eurozone, France’s central bankers and ministers have offered some clues into the possible future approaches to a digital euro.

In September 2020, Banque de France governor François Villeroy de Galhau gave a speech in which he said that recent evolutions in payments present a major challenge to the traditional complementarity of central bank and commercial bank money as settlement assets in the financial ecosystem.  

Villeroy de Galhau gave a helpful sketch of how this has played out in recent years, pointing to:

  1. The digitalization of the retail economy, with the rise of new and convenient digital payment solutions. The subsequent decline of cash raises the issue of a decline of central bank money in circulation with the public.
  2. The European ecosystem’s overreliance on both international card schemes and Big Tech, reducing the bloc’s control over its technical and commercial decision-making and data regulations.

Echoing other Eurozone governors, Villeroy de Galhau has also characterized the prospect of private sector stablecoins and private financial infrastructures as a potential threat to nations’ financial sovereignty. 

To resolve this, the Banque de France has mapped out a “strategic square” for the Eurozone’s response to revolutions in conventional money:

  1. Reducing existing frictions in cross border payments shortcomings;
  2. Taking on BigTech’s global projects in finance, i.e. stablecoins;
  3. Consolidating the European Payment Initiative;
  4. Potentially issuing a euro-CBDC.

Europe has “one to two years,” as of September 2020, to decide on a digital currency, in France’s view. 

As part of its contribution to the Eurosystem’s investigations into CBDCs, the Banque of France issued an open call earlier this year to private sector actors regarding CBDC use for interbank settlements, in particular, the clearing and settlement of tokenized financial assets

Hong Kong CBDC

Hong Kong is studying the cross-border benefits of a blockchain CBDC

The Hong Kong Monetary Authority (HKMA) has recently appointed blockchain firm ConsenSys to develop technology for its ongoing study of using central bank digital currency (CBDC) for cross-border payments. 

Since May 2019, HKMA and the Bank of Thailand (BoT) have been working on a joint project that combines their respective CBDC research initiatives into a study focused on cross-border flows. 

Dubbed Project Inthanon-LionRock, ConsenSys has signed on at phase two of its implementation, together with PwC and Forms HK. It is expected to use its full-stack Ethereum products to test various solutions for the experimental digital currency infrastructures of both central banks, and the corresponding banking network they are trying to establish using DLT and CBDCs. 

Inthanon-LionRock had concluded its third phase in December 2019 with the creation of a working CBDC prototype that used distributed ledger technology (DLT). The system established a Thai Baht-Hong Kong Dollar cross-border corridor, and used smart contracts for real-time cross-border funds transfers.

In these earlier phases of the project, the central banks of Hong Kong and Thailand analyzed and deployed DLT — specifically R3’s Corda network — for multiple aspects of the cross-border CBDC corridor. This spanned token conversion, real-time interbank funds transfer, foreign exchange execution, liquidity management and regulatory compliance. 

Ten banks participated in prior phases, including HSBC and Standard Chartered, and the HKMA believes its development work on the project so far will provide “good references to the central banking community on the use of central bank digital currency.”

Japan CBDC – Digital Yen

Japan says a CBDC can protect its "currency sovereignty"

The Bank of Japan has recently revealed that it plans to begin experimenting with designs for a digital yen within the current fiscal year (up until March 2021).

While the bank has been relatively cautious on this front, Japanese ministers have warned that the country cannot afford to let private sector actors take the lead with their own digital currencies. The head of the head of the Liberal Democratic Party’s council on financial affairs, Kozo Yamamto, has said:

“If something too convenient pops up from the private sector, people might start to doubt whether they need yen as a currency unit. We must prevent this from happening. This is fundamentally about protecting Japan’s currency sovereignty.”

As well as discussions about public-private competition and monetary sovereignty, talk of the digital yen has also sparked a reconsideration of the Bank of Japan’s mandates. These may need to be revised to include CBDC issuance, as well as adding inflation targeting and full employment, taking the precedent set by the United States’ Federal Reserve.

Interestingly, Japanese households are beginning to shift away from cash, although the trend remains slow relative to other nations, which may be a concern to the adoption of its digital currency.

South Korea CBDC – Digital Won

Korea is on phase 3 of its blockchain CBDC pilot

The Bank of Korea plans to start testing the distribution of its central bank digital currency in 2021. 

BoK launched a 22-month CBDC pilot program in April 2020 that will run through to December 2021. Having completed phases 1 and 2, which involved technological development and operational analyses, phase 3 will entail the BoK overseeing the distribution and circulation of the digital currency.

Notably, BoK is using blockchain technology to keep track of CBDC transactions for its trial system. 

The central bank has underscored that the lengthy program remains a pilot and does not necessarily mean that Korea will see an actual CBDC rollout in future. 

BoK has sent mixed signals about central bank digital currency in the past, having dissolved a dedicated digital currency research team in January 2019. However, the central bank  convened a legal team June 2020 to work for 12 months (until May 2021) on clarifying legal areas that concern the BoK’s issuance of a digital currency.

Russian Federation CBDC – Digital Ruble

Vladimir Putin has expressed interest in a CBDC since 2017

The Bank of Russia released a public consultation paper on the development of a digital ruble in October 2020 — confirming a longstanding interest in CBDCs that was attributed to the country’s president, back in fall 2017.

Creating a digital ruble would require the creation of additional payment infrastructure, in the central bank’s view, but the benefits include heightened efficiency, simplicity and security for payments. The Bank of Russia also believes that a national digital currency would “limit the risk of reallocation of funds into foreign digital currencies, contributing to macroeconomic and financial stability.” 

Domestically, the central bank believes that a single, central bank-issued digital ruble would reduce citizens’ reliance on various payments service providers, further promoting stability, and improving financial inclusion in remote and sparsely populated regions.

A prospective digital ruble would not replace cash and would be a digital representation of the national fiat currency, ensured by the state and Bank of Russia. The bank’s latest report outlines that citizens can benefit from e-wallets and mobile applications and that payments would be supported both on- and offline.

The digital currency use would extend to citizens, financial market participants, and government entities, and would, as legal tender, function as a store of value, recognized unit of account and medium of exchange. 

As of October 2020, at least five Russian banks — the state-backed Promsvyazbank, the Credit Bank of Moscow, commercial bank Zenit, mortgage bank Dom.RF and Crimea’s Russian National Commercial Bank — have expressed interest in participating in future, non-public tests of the digital ruble. 

The most recent reports allege that the first digital ruble pilots are expected to launch in 2021, once Russia’s law “On Digital Financial Assets” has been adopted on Jan. 1. 

The Bank of Russia is apparently considering using the digital ruble to distribute salaries and benefits, and is also expecting merchants to have to reconfigure their payments terminals ahead of the CBDC’s rollout. 

Singapore CBDC – Project Ubin

Singapore has a multi-year blockchain CBDC project underway

The Monetary Authority of Singapore (MAS) has conducted a pioneering, multi-year and multi-phase research initiative into blockchain technology and CBDCs called Project Ubin.

Beginning in late 2016, MAS has incorporated a range of private partners from the banking world, blockchain space, and wider tech industry for the five phases of the project to date.

Participant banks in this digital currency project have included Bank of America Merrill Lynch, Citi, Credit Suisse, HSBC, J.P. Morgan, Mitsubishi UFJ Financial Group, Standard Chartered and others.

A of Phase 2, R3, IBM, Consensys and Microsoft have offered support for work with their DLT platforms: Corda, Hyperledger Fabric, Quorum and Azure.

Phase 1 of Ubin focused on a proof-of-concept for conducting interbank payments with DLT, and concluded in March 2017. Phase 2 was titled “Re-imagining RTGS” (real-time gross settlement), concluding November 2017. 
For Phase 3, MAS partnered with Singapore Exchange (SGX) to develop Delivery versus Payment (DvP) capabilities for the settlement of tokenized assets, using smart contracts, across different blockchain platforms. It concluded in Nov. 2018.
For Phase 4, MAS, the Bank of Canada, and the Bank of England assessed alternative models that could enhance cross-border payments and settlements. 
The collaboration led to MAS and the BoC linking up their experimental domestic payment networks, Ubin and Jaspar. It also resulted in a successful test of cross-border and cross-currency payments using CBDCs in May 2019.
As part of Phase 5, MAS, JP Morgan and Temasek completed a blockchain-based multi-fiat-currency payments network prototype. It covered use cases like delivery versus payment (DvP) settlement, cross-border payments channels, the settlement of foreign currency-denominated securities and trade finance. 
An MAS spokesperson has clarified the interaction between CBDCs and commercial bank digital currencies within Phase 5, telling reporters that:

“The project provides connectivity interfaces for the issuance of digital currencies on the network, by different partners which could be both central banks and commercial banks. 

Where the issuer is a central bank, the corresponding digital currency on the network would be what we commonly refer to as Central Bank Digital Currency (CBDC). 

Where the issuer is a commercial bank, the corresponding digital currency would be commercial bank money, and this is similar to off-shore foreign currency clearing.”

South Africa CBDC – South African Reserve Bank

South Africa’s central bank is looking for partners for hands-on experimentation with a CBDC

In spring 2019, the South African Reserve Bank (SARB) published a tender seeking out solutions providers to join a feasibility project for a central bank digital currency. 

SARB has been conducting research into CBDCs, or electronic legal tender, since late 2016. Until now, this research has delved into the various models of existing public and private digital currencies, as well as the potential implications of the creation of a domestic, general purpose digital currency that would be issued and backed by SARB. 

Upon publishing the tender, SARB representatives told reporters that:

“The next phase will be practical hands-on experimentation of potential design models in an innovation lab (sandpit) environment by considering available emerging technologies as well as security and risk management aspects.”

The results of this experimentation, together with SARB’s earlier phases of CBDC and broader digital currency research, are expected to serve as the basis for the central bank’s position on CBDC issuance in the country.

Since meeting with prospective tender vendors to discuss the project in spring 2019, SARB has not published extensive official updates on more recent developments. 

In August of this year, reporters cited SARB as saying that ““work continues to appraise the different submissions in the RFP [request for proposal] process to consider potential proofs-of-concept for an Electronic Legal Tender (ELT).”
In parallel to experimenting with a general purpose, i.e. retail-oriented digital currency, SARB has been collaborating with ConsenSys since 2018 on a project called Khokha. Together with seven commercial banks, SARB, ConsenSys and Adhard have been working on proofs-of-concept that use Quorum — an enterprise-grade implementation of the Ethereum (ETH) blockchain — for internal payments systems. 
Khokha was named the best distributed ledger initiative in the FinTech RegTech Global Awards of 2018, awarded by the publication Central Banking. The award recognized that the network had scaled successfully, managing the entire daily volume of transactions that typically pass through interbank clearing and settlements systems within just two hours.

The award also commended that transactions were cleared, across a network of geographically distributed nodes, with full transactional privacy and settlement finality. Single transactions took just two seconds and SARB maintained full regulatory oversight over the network throughout.

On the technical front, ConsenSys has clarified that the proof-of-concept used for Khokha was built upon a permissioned blockchain network, the Istanbul Byzantine Fault Tolerance consensus mechanism, Pedersen commitments, and range proofs.

Sweden CBDC – e-Krona

Sweden is already testing its CBDC, the e-krona

Sweden began a one-year pilot of a CBDC, known as the e-krona, in February 2020. If issued, it would give the general public “access to a digital complement to cash,” in the words of the country’s central bank, Sveriges Riksbank.

The pilot project is being run together with Accenture and is intended to simulate a test environment, in order to better understand how an e-krona could be used by a general public. The pilot currency is based on distributed ledger technology (DLT), specifically R3 Corda.

“There is currently no decision on issuing an e-krona, how an e-krona might be designed or what technology might be used,” Riksbank’s statement for the pilot has emphasized.

The pilot network being used for e-krona is permissioned, meaning it is private and only accessible to Riksbank-approved participants. The system’s architecture has been distilled into five components:

  • E-krona network and governance, controlled by Sveriges Riksbank;
  • Participant nodes, their databases and e-krona contracts, and flows. These contracts (structured as Corda-distributed applications) enforce the central bank’s regulatory framework via technical and legal rules;
  • An integration layer (application programming interfaces, or API) for interacting with existing systems such as RIX and core banking systems;
  • Multiple forms of digital wallets (smart mobile apps, wearables, cards, terminals);
  • Simulated versions of banking systems and RIX (the Riksbank’s settlement and central payments system). 
A major report released by the Riksbank in June 2020 outlined four possible models of e-krona or CBDC design, and placed the ongoing pilot at the Riksbank into the category of “a decentralized e-krona with intermediaries.”
Alongside the sharp decline in cash circulation in Sweden, Riksbank governor Stefan Ingves has pointed to the unveiling of Facebook’s Libra project as an “incredibly important catalytic event” for worldwide digital currency research and development.

Thailand CBDC – Digital Baht

Thailand is cautiously expanding its test CBDC to the retail market

In June 2020, the Bank of Thailand announced plans to develop a prototype of a payment system for businesses using central bank digital currency, entering Phase 3 of its multi-phase Project Inthanon.
Project Inthanon, underway since August 2018, has involved collaborations between the central bank and eight major financial institutions, as well as technology partners R3 and Wipro (Phase 2). The partners have studied and developed a proof-of-concept for domestic wholesale funds transfers using a wholesale CBDC. 

BoT’s stated goals have been to learn more about distributed ledger technologies and to trial a tokenized version of the Thai fiat currency, the baht, as part of a decentralized real time gross settlement system (RTGS), as well as for liquidity saving mechanisms (LSM). 

In addition, Phase 2 investigated the use of a tokenized baht for interbank bond trading and interbank repos (short-term interbank collateralized lending). The BoT has also assessed the project from the perspective of regulatory compliance and data reconciliation for third party funds transfer.

In January 2020, the BoT announced the creation of a cross-border transfer prototype co-developed with the Hong Kong Monetary Authority. 

Its next step will involve BoT, HKMA and their partner financial institutions, with a focus on CBDCs for other use cases in cross-border transfers.

For phase 4, the BoT plans to expand the digital baht into the retail market, though executives have warned that “this phase will require a cautious study of both pros and cons.”

The BoT is wary that a retail digital currency could fundamentally transform the current role of financial institutions and potentially disrupt the overall financial market and financial stability. 

Overall, the central bank believes a digital baht will reduce the operational costs of financial transactions, but remains wary of stability risks, as well as the potential threat of private sector digital currencies like Facebook’s Libra.

Ukraine CBDC – e-Hryvnia‍

Ukraine thinks a CBDC can help tackle its shadow economy

The National Bank of Ukraine released a report in February 2020 outlining the scope and results of its pilot project for a CBDC, called the e-hryvnia.
Yakov Smolii, Governor of the National Bank of Ukraine, wrote that same month that “in 2020, the existence of digital currency is beyond question. CBDC is a fact of life. The only question that remains is who will do it, and when.”

NBU has been researching a CBDC for four years. Interestingly, the pilot project of the e-hryvnia involved completely anonymous e-wallets, although the central bank noted it could be developed in future in accordance to Know Your Customer (KYC) requirements.

The central bank tested a centralized ecosystem for the e-hryvnia, involving two levels and a layer of intermediaries. 

Level 1 consisted of the NBU, as the CBDC’s issuer, owner of the technological platform and a general accounting book in e-hryvnia. Intermediaries — banks and agents — were appointed to provide services for individuals and merchants through e-wallets. Level 2 consisted of individuals and merchants carrying out transactions in a wide ecosystem.

A decentralized e-hryvnia ecosystem was sketched out, but not tested, by NBU. In this system, the central bank remains owner of the technological platform and a general accounting book in e-hryvnia. However, banks, mobile operators, agents, and non-bank financial institutions are tasked with the digital currency issuance as well as the provision of services to individuals and merchants.

DLT, the central bank noted, is not necessary for a centralized e-hryvnia model, as its main advantages are the absence of a single trust center and the ability to audit transactions by a plurality of distributed parties.

During its pilot, the central bank revealed it had failed to agree on a business model with payment market participants, due to differences over an appropriate tariff/fee model. The digital currency pilot was therefore completed with a zero-commission model for the time being.

One significant downside for Ukraine, the NBU’s report noted, remains a lack of modernized payment infrastructure that would support the efficient circulation of a future e-hryvnia. 

One of the key benefits of a CBDC, in the central bank’s view, is that it presents an opportunity to reduce the amount of cash in circulation and thus to better tackle the country’s shadow economy.
Governor Smolii has said that the NBU will return to the e-hryvnia “when we are convinced that not only it’s technologically feasible, but also that it will not interfere with price and financial stability.”

United Kingdom CBDC – Digital Pound

The Bank of England thinks a CBDC would have ‘huge implications’

The Bank of England governor Andrew Bailey confirmed, as of July 2020, that the central bank was looking at the question of creating a CBDC, avowing that “in a few years' time, we will be heading toward some sort of digital currency.”

Bailey has underscored that he believes CBDC issuance would have “huge implications” for the nature of payments and society. He equally conceded that digital currency development would only take priority for the Bank of England once the COVID-19 crisis is “behind us.”

The Bank of England is part of a key working group of several global central banks — Bank of Canada, the Bank of Japan, the European Central Bank, Sveriges Riksbank and the Swiss National Bank, together with the Bank for International Settlements — that have teamed together to study use cases, economic and technical design choices and cross-border interoperability models for CBDCs.
Bailey’s predecessor at the BoE, Mark Carney, had notably proposed a radical overhaul of the global financial system that would pivot around a new, global digital currency, rendering the United States dollar’s status as global reserve currency obsolete.

Carney argued that instead of one national fiat currency ceding hegemony to another — for example, China’s renminbi — the global financial community would be better served by the creation of a “synthetic hegemonic currency,” backed by a network of central bank digital currencies. 

Amid a backdrop of trade wars and prospective currency wars — and well before the Covid-19 pandemic hit — Carney argued that a rethink of the status quo is unavoidable:

“The combination of heightened economic policy uncertainty, outright protectionism and concerns that further, negative shocks could not be adequately offset because of limited policy space is exacerbating the disinflationary bias in the global economy. What then must be done?”

In March 2020, the BoE released a discussion paper devoted to CBDCs, which cast a positive light on the compatibility of a potential CBDC and the central bank’s long term objectives. 

United States CDBC – Digital Dollar

The Fed experiments, but makes no promises, on a future digital dollar

Christopher Giancarlo — the former chairman of the United States Commodity Futures Trading Commission — leads the nonprofit Digital Dollar Foundation, which, together with Accenture, has published an ambitious proposal as part of the Digital Dollar Project (DDP) to run as many as nine pilot CBDC programs.

As part of its sketch for a series of “pressure test” programs to explore the potential benefits of a U.S. CBDC, the Foundation listed a series of core components that it considers should be the baseline for testing digital dollar models:

  1. Tokenized, making it a true bearer instrument;
  2. Issued by the Federal Reserve;
  3. Distributed through the existing two-tier banking system and regulated intermediaries;
  4. Balanced towards individual privacy rights with necessary compliance and regulatory policies;
  5. A monetary policy neutral transaction object, akin to how cash and accounts-based commercial money currently function;
  6. Architected and built for future flexibility and driven only by functional requirements that are informed by policy and social decision;
  7. Able to transact offline when both parties are in close physical proximity;
  8. Accessible to all persons in the United States regardless of location, income, orfederally protected classes;
  9. Supportive and complementary to additional payment sector innovation.

Like most other CBDC research, the proposal pits the right to privacy against the need for regulatory protections against anti-money laundering. The potential scope for government surveillance should be guided by established Fourth Amendment jurisprudence and consumer protection laws, in the Foundation’s view.

The various stakeholders and users of a prospective digital dollar have been differentiated across geographic and functional lines, spanning un- and underbanked consumers, banked consumers, small, medium and multinational business users and financial market infrastructure players.

In one suggested pilot for the financial market participants, the Foundation proposed that the Depository Trust & Clearing Corporation would test atomic settlement procedures for tokenized cash and tokenized securities on ledger.

Another proposed pilot envisioned the use of programmable digital tokens by local and state government assistance agencies in order to distribute benefits and welfare programs.

While the Digital Dollar Foundation’s pilot proposals are far-reaching, ambitious and multi-faceted, they have not been initiated by the Federal Reserve; none are, as of October 2020, operational.

In August 2020, the Federal Reserve published an overview of multiple in-house experiments underway at the central bank’s Board Technology Lab, also known as TechLab. 

These include the Federal Reserve Bank of Boston’s collaboration with researchers at the Massachusetts Institute of Technology (MIT) to build a hypothetical digital currency oriented for central bank use. 

The outcomes of this collaboration are, however, intended to result in an in-depth understanding of relevant technologies and the implications of a CBDC for policy, rather than to offer a prototype for a future Fed-issued digital currency.

Uruguay CBDC – e-Peso

Uruguay is an early pioneer in CBDC pilots and research

The Uruguayan Central Bank has been a pioneer in CBDC research, conducting a pilot for an e-peso as early as November 2017, which the International Monetary Fund later hailed as a success

Operational for six months, the consumer-oriented digital currency system ran through a mobile system without the need for internet connection, and did not use distributed ledger technology. 

It was designed for transactions at affiliated merchants and peer-to-peer transfers, with limited bill issuance ($20 million for 10000 mobile users) and holding limits per user ($30,000 per consumer wallet and $200,000 for registered businesses).

Commercial banks did not participate in the pilot system, which made it difficult to gage the impact of a CBDC on the banking system. However, the IMF considered that the e-peso had the potential to provide more systematic and transparent information on money demand in real time, which could benefit monetary policy transmission. Transparency is also a benefit for tackling tax evasion and money laundering.

The IMF has noted that if the e-peso leads to a reduction in bank deposits, this could increase the funding costs for banks, and an increase in equilibrium interest rates — a concern that is widespread among analysts of retail CBDCs.

While it was an early mover in CBDC research, the Uruguayan Central Bank has since been relatively quiet about the future prospects of e-peso issuance.

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