Onthe face of it, the pandemic caused a global disruption with millions losing their jobs as economies shut down to control the spread of the virus, but it might also have expedited the digital transformation that was already taking before the onset of the pandemic. The demand for online services, surge in e-commerce volume and the shift to touchless systems have spurred this digitization.
Although cash usage was already seeing a steady decline in usage in many economies of the World, people moved further away from the traditional payment mechanism to avoid the interaction. Ever since the launch of decentralized cryptocurrencies like Bitcoin, many central banks have been mulling over the idea of digital currencies, with quite a few running their individual pilot programs.
It’s no secret that China has been vying for a pioneering spot when it comes to issuing a Central Bank Digital Currency (CBDC). In fact, the second-largest economy is already testing a digital version of its national currency — according to a recent announcement, it will launch a digital currency pilot program in some qualified regions including Beijing-Tianjin-Hebei, Yangtze River Delta, Greater Bay Area around the Pearl River Delta, and some cities in Midwestern China with policy support from PBC.
Credit — WSJ
Earlier this year, Six major global central banks of Sweden, Canada, Switzerland, the U.K., Japan, and the European Central Bank (ECB) have formed a working group along with the Bank of International Settlements (BIS) to investigate the use cases of issuing their respective CBDCs. Keep in mind the most of these banks are already exploring the possibility of issuing a CBDC through their individual pilot programs.
Citing modernization of the financial system, Brazil’s chief central banker, Roberto Campos Neto, has called for issuing a CBDC by 2022. As reported by news outlet Correio Braziliense, the central bank head believes it is a natural outcome of the fast-digitizing financial systems around the world. He pointed towards the roll-out of the PIX instant payments system last November and the launching of an Open Banking initiative later this year as part of the broader initiative.
“A CBDC distinguishes itself from cryptocurrencies without national trust, like Bitcoin, because it is just a new form of representation of the currency already issued by the national monetary authority.”
~ Banco Central President
France has been quite active with its push for a digital Euro — Banque de France has picked eight potential candidates for the integration of the newly proposed CBDC into interbank settlements. The list of companies includes noteworthy names like Accenture, HSBC, and Societe Generale, as well as smaller crypto-focused players like Seba Bank and LiquidShare.
The Bank of Japan (BOJ) which didn’t see much potential in the launch of its own CBDC is finally cozying up to the idea. Apart from being a part of the working group mentioned above, the central bank has set up a dedicated team to explore the potential and possible implications of issuing a CBDC. The team will likely be following up on BOJ’s 2019 research in the area.
Smaller countries like Columbia and the Bahamas have already floated their digital currencies — Petro & Sand dollar respectively. The implications of such a move have been minimal globally considering the smaller economic impact of these two states. However, major countries like China going cashless could have major implications for the global financial system.
China might have a lot to gain from a digital currency as it tries to take a shot at the hegemony of the U.S dollar internationally and reinforce the surveillance state powers internally, with the tracking that a new CBDC would offer. A new CBDC might also mean better controls when it comes to curbing money laundering around the World. For people like us, no transactions would be private anymore — decentralized crypto anyone?
Originally Published on Medium
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