A central bank digital currency (CBDC) is a digital form of cash issued by a country’s central bank. Digital forms of money are already widely used today. When you swipe your debit or credit card instead of using cash, or when you get paid by direct deposit, the associated financial institution must digitally record the transaction and update your account balance.
A CBDC would support systems already established by private financial institutions by issuing digital fiat currency fully backed by a central bank. In most countries, the only type of central bank money available to the public are physical banknotes.
Interest in CBDCs has exploded in recent years. According to the Atlantic Council, an independent think tank headquartered in Washington, D.C., a total of 87 countries are planning to publish a CBDC as of March 2022. Less than two years prior, in May 2020, only 35 countries were considering a CBDC .
This article will focus on some of the biggest countries currently developing a CBDC.
Key points to remember
- The number of countries considering launching a CBDC has exploded over the past two years.
- Russia and India have already launched pilot CBDCs which are currently being tested.
- The United States has no plans to issue a CBDC, but the Federal Reserve recently invited the public to start an open discussion about the value of a CBDC in the United States.
- Nine countries have fully launched a CBDC.
In February 2022, India’s Finance Minister Nirmala Sitharaman announced that the Reserve Bank of India (RBI) would introduce a digital rupee in the fiscal year 2022 to 2023, which begins on April 1, 2022. If it sticks to its plans, India will be one of the biggest economies to issue a CBDC.
The announcement came after a number of conflicting reports from the country’s central bank, starting in 2018, when it threatened to ban all private cryptocurrency trading in India. This law was struck down in March 2020 by the Indian Supreme Court.
Details about India’s CBDC are scarce, but Sitharaman said a CBDC would boost India’s economy, increase efficiency and reduce costs in the country’s currency management system, and provide a stable and regulated digital currency that would counteract private cryptocurrencies.
In a speech on February 14, 2022, Shri T Rabi Sankar, Deputy Governor of the RBI, expressed concern that the large-scale adoption of private cryptocurrencies “would undermine the ability of authorities to control the money supply or interest rates”.
Along with announcing a digital rupee, India announced that it would tax private cryptocurrency transactions at a flat rate of 30%.
The Bank of Russia first announced its intention to launch a digital ruble in October 2017. The country’s central bank said a CBDC would reduce the cost of payment services, promote competition among financial institutions, provide a convenient means of payment for its citizens in territories with limited access to financial infrastructure, and reduce dependency. from Russia to the US dollar.
The digital ruble will be built on a hybrid platform that combines distributed ledger technology (DLT) and central control of the Bank of Russia. Unlike other countries developing digital currencies, Russia plans to make its CBDC available offline.
In June 2021, the Bank of Russia announced a partnership with 12 banks, including Sberbank, VTB, Gazprombank and Alfa Bank. In December 2021, Russia announced that a digital ruble prototype had been completed and a number of test transactions using the digital ruble had been successful.
After Russia invaded Ukraine in February 2022, many commentators indicated that Russia could use cryptocurrency to evade sanctions imposed by other nations. A digital ruble would likely expand Russia’s ability to circumvent international sanctions.
Brazil has been exploring a CDBC since at least 2020, after the successful deployment of PIX, an instant payment system created by the Central Bank of Brazil (BCB). There have been 7 billion transactions made, with over 60% of the adult population counted as PIX users. Assured that Brazil has the infrastructure for a digital currency, the BCB said it would launch a digital real pilot in 2022, with a final version expected in 2024.
Speaking in January 2021, Senator Rodrigo Cunha, President of the Brazilian Commission for Science and Technology (CCT), explained that a digital real issued by the BCB would increase the efficiency of the monetary system, facilitate settlement faster and safer international financial transactions, and—thanks to the inherent traceability of a CBDC—help fight money laundering, corruption, tax evasion, drug trafficking, and terrorism.
Conflicting reports have emerged regarding the technology used in the real Brazilian digital pilot. Cryptocurrency platform Lithosphere, developed by Seattle-based blockchain company KaJ Labs, issued a press release saying it would partner with BCB to launch digital real, but BCB later debunked this claim.
Although the United States has no confirmed plans to launch a digital currency, the Federal Reserve Bank has shown interest in CBDCs. In January 2022, the Fed released a highly anticipated report providing economic context and weighing the benefits and risks of CBDCs. This report was described by the Fed as a “first step” in issuing a CBDC. Its purpose was to facilitate a broad discussion of the implications of a CBDC in the United States.
The Fed report, The dollar in the era of digital transformationindicated that a CBDC should:
- deliver benefits to households, businesses and the broader economy that outweigh costs and risks;
- produce these benefits more efficiently than alternative methods;
- complement, rather than replace, current forms of money and methods of delivering financial services;
- protect consumer privacy; and
- protect against criminal activity and enjoy broad support from key stakeholders.
The report also states that the Federal Reserve will not proceed with issuing a CBDC unless it obtains clear support from Congress, “ideally in the form of specific enabling legislation.”
How many countries have launched a central bank digital currency?
Nine countries have fully launched a central bank digital currency (CBDC). Eight of the nine countries are located in the Caribbean. Nigeria and its e-Naira have become the latest country to institute a CBDC. It is the first country in Africa to create a CBDC.
Will the United States Create a Central Bank Digital Currency (CBDC)?
The United States does not have established plans to create a CBDC, but the Federal Reserve released a report in January 2022 that invited public comment and assessed the potential risks and benefits of a US CBDC. In March 2022, President Biden issued an executive order directing Congress to “assess the technology infrastructure and capacity needs of a potential U.S. CBDC.”
Has Russia launched a central bank digital currency (CBDC)?
In December 2021, the Bank of Russia announced that a prototype of the digital ruble was completed. Russia’s central bank has reported that a number of test transactions using the digital ruble have been successful. 12 Russian banks have agreed to issue the digital ruble in partnership with the Central Bank of Russia.
A total of nine countries have already launched CBDCs, eight of which are located in the Caribbean. Nigeria, which launched the e-Naira in October 2021, is the latest country to issue a CBDC. As cash transactions become increasingly rare and more countries assess the benefits of digital currency, the number of central banks issuing digital fiat will only increase.
For a full list of countries and their CBDC status, visit the Atlantic Council’s CBDC tracker.