Lately, there has been lots of exposure in the news of Central Bank Digital Currencies or as they are otherwise known CBDCs. But what are these CBDCs, and what countries are launching or thinking of launching their own digital currencies?
What are CBDCs:
A central bank digital currency (CBDC) uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation (or region). A CBDC is centralized; it is issued and regulated by the competent monetary authority of the country.
What are some of the countries that plan to launch their own CBDCs?
Well, virtually 85% of countries in the world are thinking or planning to do so.
China is leading the race, with the digital Yuan being far more developed that a counterpart digital dollar or digital Euro.
Since the Chinese market is far ahead others in cashless payments, the Digital Yuan could compete with other digital payment services such as Alipay and WeChat Pay. The Digital Yuan is already being tested in some cities in China, and its distribution according the the People's Bank of China is that it will first be distributed to selected banks and from there to consumers which can exchange their fiat with digital yuan. The end goal eventually will become the internationalization of the digital Yuan, making it an international or cross-national payment currency.
On the other hand the US is far behind. The Federal Reserve is still researching the topic while some actors like the Boston's Fed and MIT have been working and testing software for a digital dollar platform. The European Union is far behind, as usually in such cases where decision are taken by a number of countries that need to agree and the red-tape is burdensome. The European Central Bank expects to launch its own digital currency by 2025, which is four years from now.
Then we have countries such as Brazil, S. Korea, Japan, Canada, the UK, and Russia who are either planning it, or preparing some pilot projects to be launched. It looks likely that in the following years, there will fierce competition between CBDCs and traditional decentralized cryptocurrencies as the latter cannot be controlled by government monetary policies. What we should expect is that as CBDCs are drawing closer, more regulation will be introduced from various governments against decentralized cryptocurrencies. We had a taste of that just a week or so ago, with China starting to take measures against Crypto now that the Digital Yuan has started being tested.
In the end, it could be the very success of crypto, with its high returns and the momentum it has created for people around the world to use it, that could make governments to enact stricter regulations against them or look to compete them by launching their own central bank digital currencies.