- The idea of a CBDC is a hot topic right now, with central banks all over the world considering them
- Some countries have moved forward quicker than others, with some in testing and pilot phases
- How are the world’s richest five countries by GDP faring with the idea of a digital currency?
The concept of a Central Bank Digital Currency (CBDC) has gained validity across the globe in recent months, brought forward by the impact of coronavirus on the use of physical cash. But where do the world’s top five countries by GDP stand on the idea of a CBDC, and how far along the road are they?
The US Federal Reserve was said to be discussing the potential of a CBDC back in February, and several meetings from US congress committees have highlighted how seriously the issue is being taken. However, with the country still being firmly cash-based in many sectors of society, any digital revolution will take time and risks leaving significant numbers of people behind – 45 million citizens don’t have smartphones and 25 million don’t have internet access.
China is by far and away the major power that has taken the biggest steps in creating a CBDC currency. As far back as 2017 they were exploring the idea of a digital yuan, with developments taking on a life of their own in the intervening years, to the point where a test app was discovered in April this year. China has the advantage of already being a predominantly digital cash-using nation, while their authoritarian governance style means they can impart a new currency almost overnight.
Western commentators have voiced their concerns that a Chinese CBDC could topple the US dollar’s dominance in world markets, thoughts echoed by Chris Giancarlo, former chairman of the Commodity Futures Trading Commission, who told the Committee on Banking, Housing, And Urban Affairs recently that Chinese plans were “directly targeting” the pillars that hold up the dollar as the world’s reserve currency.
Japan recently hired a crypto-friendly official as the next Financial Service Agency, which ties in with their desire to experiment with a CBDC from a technical perspective. The Bank of Japan has already expressed an interest in creating a digital version of its national currency, the yen, although no timetable has been made public.
The central bank has limited its public statements to an expression of a desire to “check the feasibility of the centralized digital currency from technical perspectives, collaborate with other central banks and relevant institutions, and consider introducing a CBDC.”
The German government highlighted its positive stance on blockchain in September last year when it rubber stamped a new blockchain strategy for the country following stinging criticism by the German finance minister over Facebook’s Libra plans last year.
In November 2019 the European Central Bank (ECB) announced that it was already examining the potential for a European CBDC with “results next year” a possibility, a call that was echoed by the 200+ member Association of German Banks who called for the ECB to capitalize on the “fourth industrial revolution” and create a Digital euro.
The UK’s Bank of England outlined their position on a CBDC in March this year when they published a paper on the pros and cons of a digital pound, stating that while it would ease transactional friction in some areas it could also “raise significant challenges for maintaining monetary and financial stability.”
It was reported last month that a blockchain firm, L3COS, had pitched a CBDC system to the Bank of England, but as yet the UK’s central bank shows no desperate desire to join the digital revolution until the time is right for them.
No CBDC Challengers to China
Overall, it is clear that China has made the biggest progress so far on the practical implementations of a CBDC, with all other countries playing catchup. There is no clear indication yet which of the big players will be the next to move to implementation, although smaller countries such as Lithuania are forging ahead with their own versions, illustrating that the rest of the world is not totally standing still on the issue.