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Central Bank Digital Currencies: Is the Future of Money Already Here?

Published 22/06/2023, 12:57

The debate around Central Bank Digital Currencies (CBDCs) has been gaining momentum following the adoption of decentralized digital assets, such as Bitcoin, in recent years. According to the latest statistics from the Atlantic Council CBDC tracker, over 114 countries across the globe are currently exploring CBDCs. Of these, 11 have fully launched a CBDC, with more expected to join the bandwagon in 2023.

But what’s more intriguing is how this debate is shaping up. On one hand, we have crypto diehards who hold the opinion that CBDCs will introduce more stringent forms of money control by governments. On the other hand, central banks are facing a difficult choice: to develop their own form of digital currencies (CBDCs) or watch as decentralized forms of money disrupt the pinnacle of traditional monetary economics.

CBDCs Vs Decentralized Cryptocurrencies

Before diving into the ongoing developments, it is important to clearly define what a Central Bank Digital Currency (CBDC) is and outline the various types of CBDCs currently in existence. A CBDC refers to a digital currency issued by central banks, giving it the status of legal tender.

The primary distinction between a CBDC and decentralized cryptocurrencies lies in their issuer and governing authority. While both utilize Distributed Ledger Technologies (DLTs), a CBDC operates within a permissioned ecosystem. This implies that it is governed by a central authority, in this case, the central banks.

Conversely, decentralized cryptocurrencies such as Bitcoin and Ether operate on permissionless blockchain platforms. This decentralized nature ensures that no central entity exercises control over the ecosystem, and it allows unrestricted access to anyone regardless of their geographical location or jurisdiction.

Wholesale Vs Retail CBDC

CBDCs, although still a relatively novel concept, can be categorized into two primary designs: wholesale and retail.

A wholesale CBDC is specifically developed for the purpose of settling transactions among financial institutions. It can take the form of reserve balances or other financial instruments held by central banks, facilitating wholesale payments and interbank settlements. In simpler terms, wholesale CBDCs are issued at an institutional level, targeting financial entities.

On the other hand, a retail CBDC, as the name implies, is intended for the general public. It enables individuals to settle payments and engage in various retail transactions. A good example of this is China’s digital yuan, which is currently being utilized as an alternative legal tender for settling merchant transactions.

In addition to these primary types, hybrid CBDCs are also emerging. Essentially, hybrid CBDCs combine the features of both wholesale and retail CBDCs, offering a blend of functionalities catering to both institutional and public usage.

Will CBDCs be Adopted?

Interestingly, the latest moves by central banks indicate that most are likely to launch a CBDC sooner rather than later.

However, launching a CBDC doesn’t automatically guarantee its adoption as the de facto currency. For instance, in Nigeria, where the country launched a CBDC called eNaira over a year ago, a recent report by the IMF indicates struggles with adoption. Currently, there are only an average of 14,000 transactions per week from 1.5% of the total active wallets.

That said, the reasons for CBDC adoption or lack thereof at the moment vary from country to country. Some countries want to maintain their sovereignty and control over money in the digital era, while some are looking to counter the adoption of cryptocurrencies. Others are genuinely looking into CBDCs to improve their payment system infrastructures.

Similarly, the progress that has been made differs. Some countries like The Bahamas and China have already launched their CBDCs, while in Europe, the digital euro is currently in the investigation phase.

Now let’s delve deeper into how different regions and countries are approaching CBDCs and where they currently stand in terms of research and development.

North America

As far as CBDC development goes, the three major economies in North America, led by the United States, are yet to launch any form of a central bank-backed digital currency. However, there have been significant developments and considerations in this area.

In January 2022, the US Fed published a CBDC report that highlighted four important features that would be crucial if a CBDC were to be launched to serve the interests of the United States. These features include identifiability (not anonymous), privacy protection, wide transferability, and intermediated access, which would be offered through financial institutions.

While the report indicated that the Fed did not currently have plans to proceed with the issuance of a CBDC, there have been subsequent developments showing growing interest in exploring the possibilities.

In March 2022, President Biden’s administration issued an executive order that emphasized the importance of conducting timely assessments of potential benefits and risks associated with a US CBDC. The order stated that the United States “should prioritize these assessments to ensure the country remains a leader in the international financial system.”

As it stands, the US government has established an inter-agency group led by the Treasury to further advance the research on the feasibility of issuing a digital dollar.

The Bank of Canada is also in its exploration stage of the possibility of issuing Canadian digital dollars; some of the reasons why this central bank is considering a CBDC include financial inclusion and protecting Canada’s financial ecosystem from being dominated by CBDCs that will likely be issued by other countries.

Meanwhile, Mexico’s digital peso, which was announced back in 2021, is still in its initial phase and will likely miss the 2024 target launch date according to the latest updates.

UK and Europe

The Bank of England has been exploring the idea of a digital pound since 2021 when it first announced that it could potentially launch a CBDC by 2030. While there hasn’t been much progress since then, the BoE recently requested applications for proof of concept CBDC wallet development in December 2022.

This initiative is complementary to BoE’s project Rosalind in collaboration with the Bank of International Settlements (BIS) aimed at API prototypes that support CBDC functionalities such as deposits, withdrawals, and peer-to-peer transfers. That said, the UK is still in the consultation phase as to whether and how it can implement a digital pound.

As for the much-discussed digital euro, the European Central Bank (ECB) recently published a progress report that outlines a series of design concepts after a two-year investigative phase. The suggested designs indicate that financial intermediaries will likely have an integral role in onboarding and handling transactions.

The report also emphasizes that the ECB will continue assessing additional designs and functionalities, such as cross-currency and programmable payments. While the launch of the digital euro is expected in three to four years, the approval of a high-level design by the ECB is anticipated in the second half of 2023.

Other countries in Europe where a CBDC could soon be launched include Russia, which recently postponed its digital ruble pilot owing to legislation hurdles, and Ukraine where the National Bank introduced a draft concept for its digital hryvnia in November 2022.


China’s digital yuan is currently the most advanced CBDC pilot worldwide. Launched in 2020, the digital yuan is already in use in over 15 provinces and has surpassed $14 billion in transactions as of October 2022.

What’s particularly noteworthy about the digital yuan is that, unlike other piloted CBDCs, it is being embraced by retail, financial intermediaries, and government institutions. Currently, over 5 million merchant stores accept the digital yuan as a recognized form of currency.

Notably, China intends to expand the functionalities of the digital yuan to include cross-border payments, starting with Hong Kong. However, it is worth mentioning that Hong Kong is also advocating for its own CBDC, e-HKD.

Another country in Asia where CBDC development is moving rather fast is India, the Reserve Bank of India (RBI) launched both a wholesale and retail CBDC towards the end of 2022, amassing over 5000 merchants and 50,000 users since the digital rupee was piloted.

Singapore’s Monetary Authority (MAS) is also currently engaged in Project Orchid, which aims to explore the potential of issuing Singapore digital dollars. According to a report released after the completion of its first phase, MAS intends to foster an innovative and responsible crypto ecosystem.

“Although MAS does not see an urgent case for retail CBDC, it is envisioned that the study of potential use cases for a programmable digital SGD (Singapore dollar) and the infrastructure required, would enable MAS and the financial services ecosystem in Singapore to develop capabilities to support a retail CBDC should the need arise,” – read the report.

Latin America

Latin America has long been sidelined when it comes to financial inclusion, which could be one of the main reasons why central banks in this region are highly considering CBDCs, according to a report by the BIS.

So far, The Bahamas leads the way, having launched The Sand dollar back in 2020. It was the world’s first CBDC to debut. And, as per a survey conducted by the IMF in 2022, only two out of the seventeen Latin American countries (LAC) were not exploring CBDCs at the time.

Other countries in this region that are actively investigating CBDCs include Brazil, which is set to launch a CBDC pilot focusing on wholesale transactions in 2024.

Meanwhile, Argentina is also preparing to join the CBDC bandwagon following the approval of a decree directing the National Mint to start investigating the development and possible issuance of CBDCs.

Middle East

In the Middle East, the UAE, through its central bank CBUAE, recently unveiled an implementation strategy for the digital dirham, whose first phase is set for completion in 2024. This includes a PoC concept for both a retail and wholesale CBDC.

The digital dirham is part of the UAE’s nine pillars for the country’s Financial Infrastructure Transformation Programme and will be launched in three phases, according to the announcement.

The first phase will involve the launch of project mBridge, a collaborative initiative between the BIS, the Hong Kong central bank, the Chinese mainland, Thailand, and the UAE to investigate the feasibility of multi-CBDC and cross-border transactions.

This will be followed by a PoC bridge connecting the UAE with India, and finally, a local retail and wholesale CBDC. Notably, CBUAE also revealed technology partners that will be integral to this development, including R3 and G42 Cloud.


Likewise, for Africa, the race to adopt CBDCs is on, and so far, Nigeria has already pioneered its digital naira (eNaira), which, as mentioned earlier in this article, hasn’t been very successful.

In Ghana, the central bank has also been exploring a digital CBDC since 2020, dubbed e-Cedi, with the aim of promoting financial inclusion, enhancing payment systems, and, above all, bringing financial services to the unbanked.

Another African giant in this race is South Africa, where the South African Reserve Bank (SARB) is currently conducting a feasibility study to explore the potential of a digital rand.

Meanwhile, Kenya’s central bank recently issued a discussion paper aimed at gathering public views on the CBDC debate.

Final Thoughts

The research, development, and implementation of CBDCs might take longer than expected, but what’s interesting to observe is the pace at which central banks are rushing to investigate their feasibility. Evidently, there is a difference in approach, which will also likely be the case in design implementation. Some will opt for retail, while others will choose wholesale CBDCs or a combination of the two. Another interesting trend to observe will be the collaboration of different countries in establishing cross-border CBDC solutions, some of which are currently ongoing.

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