What Countries Are Joining the Digital Currency Race?

Digital Currency Race

The race is heating up globally, as central banks around the world accelerate their plans to launch digital currencies.

Central banks worldwide are exploring ways to issue their digital currency, also known as central bank digital currencies (CBDCs). In a report released in January 2020, the Bank for International Settlements (BIS) surveyed 66 central banks and found that 80 percent were developing CBDCs. While the motivations for developing digital currencies vary from country to country, many central banks believe that these digital assets have the potential to improve payments efficiency and safety (domestic and cross-border) as well as financial stability. Overall, banks are looking to be more cost-effective so that they can serve customers better, particularly in times of economic uncertainty or crisis. 

What are central bank digital currencies (CBDCs)?

Issued and regulated by a nation’s monetary authority or central bank, a CBDC is a virtual or digital asset version of a fiat currency, such as USD, EUR or GBP. Unlike cryptocurrencies, that grew in popularity since Covid, they are not decentralized. CBDCs aim to improve the efficiency of payments and financial inclusion and reduce the risks associated with using cash. 

The Bahamas was the first country to launch a digital currency, called the “Sand Dollar”, in October 2020. The digital currency is pegged to the Bahamian dollar and can be used for both domestic and international transactions. Other places that have fully rolled out a digital currency include Nigeria and seven Eastern Caribbean Union countries (Antigua, Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia and St. Vincent and the Grenadines).

Although digital currencies are still in their infancy, several countries are rushing to create CBDCs. Let’s take a look at some of the countries that are experimenting with a digital currency.

Meet the upcoming front-runners in the CBDC race

China

China is likely to be the first to fully launch a CBDC as per experts. Conceived in 2014, the digital yuan currency (digitized version of the physical yuan), also known as e-CNY, is one of the most closely watched CBDCs. Though scrutinized by Biden, the digital yuan is not intended to replace the U.S. dollar, says China. Initially, China intended to launch the digital yuan nationally during Beijing Winter Olympics 2022. However, the outbreak of Covid pushed back their plans to roll out the digital yuan officially to 2023 or 2024.

In April 2021, China began testing e-CNY in several cities, including Beijing, Shanghai and Shenzhen. In April this year, the bank expanded the pilot project to more regions, including six cities in eastern Zhejiang province (e.g. Hangzhou, a city in the province that will be hosting the Asian Games in 2023), Tianjin, Chongqing, Guangzhou, Fuzhou and Xiamen. The move is an attempt to strengthen China’s digital currency system before the country launches its digital yuan on a broader scale. 

Taiwan

The Central Bank of Taiwan (CBT) has been working for two years now to roll out its CBDC, with which people can make payments without using a debit or credit card.

In September 2020, Taiwan began looking into the feasibility of developing its CBDC, and the CBT worked with at least five commercial banks in Taiwan to build a retail payment system. In late June this year, the CBT announced that the second stage of its pilot program had been completed,  three months earlier than the expected deadline in September. Besides moving on to ensure a stable payment system and build the legal framework for the operation of the digital new Taiwan dollar, one of the most crucial upcoming tasks is communicating with the public and gaining their support, as Taiwanese people are used to using cash in everyday life.

The digital new Taiwan dollar will use a two-tier retail model that will coexist with the country’s current banking and financial system. People can use the digital currency with or without their credit and debit cards, and even children can use it. 

India

The Indian government expects to issue a digital version of its currency, the rupee, in the 2022-2023 financial year beginning in April. The digital rupee would be issued by the Reserve Bank of India, the country’s central bank. 

In the annual budget speech this year, Finance Minister Nirmala Sitharaman said that, using blockchain and other technologies, the digital rupee would lower the cost of the currency management system and improve its efficiency. Currently, cash is the major transaction method in India, and it is expensive to manage and transport. In addition, cash is also vulnerable to fraud and counterfeiting. The country is expecting the digital currency to “propel the GDP [of India] to US$5 trillion”.

Europe

In February 2022, the European Commission declared that it would release a digital euro bill early next year. According to EU Financial Services Commissioner Mairead McGuinness, the bill allows the European Central Bank (ECB) to begin technical procedures for developing a virtual version of a Euro banknote or coin. 

The ECB is already trialing digital euro designs and systems and will work on a prototype at the end of 2023. After that, if Eurozone governors deem minting a digital euro is “worth the trouble”, the digital euro could be ready by 2025. The public consultation on the development of the digital euro ended on June 14, and it collected ideas on “the ease of use, availability, fees, standards and caps on holdings needed to safeguard financial stability”. Residents of the European Union, tourists or trade partners should be able to use the digital euro, as per the consultation.

With more and more nations jumping into the cryptocurrency race, no one knows who will emerge as the winner in 2022. However, one thing is certain: the global money landscape is changing, and digital currencies are here to stay.

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Header image courtesy of Freepik

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