Given the current state of the global economy and the direct impact of the Coronavirus, many sectors have turned towards digitalization and remote work, and the need for digital money has emerged more.
Central banks have been monitoring what is happening for a special period in light of the spread of Bitcoin and encrypted digital currencies, and some central banks have seriously begun to develop what is known as the central bank digital currency (CBDC).
CBDC currencies are a form of (traditional) fiat currencies but in digital form, and some of them can be developed based on blockchain technology.
Many countries are conducting research or are already close to launching a national digital currency.
In a paper published by the Bank for International Settlements (BIS) last Friday, it revealed that central banks are participating in the CBDC game because they are suffering from cryptocurrency betting and competition.
The Bank for International Settlements (BIS) functions as an international organization, providing support to national central banks.
The banks participating in the report are:
The US Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of Japan, the Bank of England, the Swiss National Bank, and the Riksbank.
Loss of control:
The published paper from (BIS) highlights the main criteria for launching and issuing a central bank digital currency (CBDC).
The paper evaluated the feasibility of digital central bank currencies and how they would help them achieve their overall goals.
Their main concern, however, is the loss of control over the payment system, which could be compromised by the mass adoption of cryptocurrencies such as Bitcoin and proprietary solutions such as the "Libra" coin proposed by Facebook.
The role of the private sector:
Central banks want cheap or free-to-use digital currencies that do not harm monetary and financial stability.
According to the report, they want digital currencies that can coexist with other legal tenders, especially the cash ones, and not a currency that makes cash obsolete.
BIS believes that the CBDC coin designed to offer these features can promote more flexible, efficient, inclusive and innovative payments.
However, despite not wanting to lose control of the payment system, the published paper indicated that there must be an appropriate role for the private sector, as well as encouraging competition and innovation.
Korea begins trading phase of Central Bank digital currency (CBDC):
Countries like China and South Korea are already close to launching their digital currencies.
China has been seeking for some time to develop a digital currency and wants to be the first to issue a national digital currency and circulate it.
Several reports have surfaced that the Chinese central bank has begun testing the digital yuan on micro-retail transactions.
Earlier this week, the Bank of Korea announced that it would launch a pilot project to issue and distribute its digital currency across the country by 2021.
But Japan is not interested in launching its digital currency soon.
According to a report released on Friday, a Japanese government spokesperson revealed that the country currently has no specific plans to issue a central bank digital currency.
However, the country acknowledged that it must increase and deepen its research on central bank digital currencies (CBDC) as the world continues to transition towards digitalization
