11 July 2020
Moving away from the traditional payment systems, the global digital payments industry is looking to do a major overhaul over the next decade. Of late, even government institutions and central banks have warmed up to the idea of having digital currencies powered by the revolutionary blockchain technology.
The concept of central bank digital currencies (CBDC) is gaining steam as central banks of major global economies have been actively testing their technologies. CBDC is basically a blockchain-powered digital representation of the national currency. Thus, we are more often hearing terms like Digital Dollar, Digital Euro, Digital Yuan, etc.
The importance of having a CBDC cannot be stressed further at a time when the world is going through a major economic crisis due to the outbreak of the Coronavirus pandemic. Central banking institutions across the globe are actively printing money as part of the economic stimulus, and having a CBDC in place would have made the money distribution process a lot simpler and more transparent.
The latest report from the Bank of International Settlements (BIS) shows a spike in the interest for CBDCs. Let’s take a look at how global leaders and government institutions are approaching CBDC developments.
Visa Crypto Chief – CBDCs Are The Future of Digital Payments
Payments processing giant Visa is bullish over CBDC growth for the next decade and thinks that it can set the most-important trend as the future of money and digital payments.
In his recent tweets, Visa’s head of crypto projects – Cuy Sheffield – said, “I’d argue that central bank digital currency (CBDC) is one of the most important trends for the future of money and payments over the next decade. Regardless of anyone’s personal views of whether it’s good or bad, the reality is that global interest in it is not going away.”
He further added that “as governments evaluate CBDC, the path they decide to take will have major implications for privacy, monetary sovereignty, geopolitics, and financial inclusion, as well as the global adoption of crypto dollars and Bitcoin.”
Visa is one company that has been very vocal and positive on crypto developments. Back in May 2020, the company filed a patent demonstrating a system that allows central banks to replace cash with blockchain-based digital currencies.
CBDC Developments In The European Union
The EU has been actively working over the last few months to have a common digital currency called the Digital Euro. Different member countries on the European Union have shown interest in contributing and leading the project.
Two weeks back, the Italian Banking Association (IBA) showed its willingness for the pilot testing of Digital Euro. Over the last year, the ABI has set-up a working group that researches on cryptocurrency and digital assets.
The IBA has assured that its utmost priority will be to maintain absolute monetary stability and compliance with the European regulatory framework.
On the other hand, another European country – Lithuania – has announced that it will start doing a trial run of its central bank digital currency called LBCOIN. In the initial testing phase, the government will see how the CBDC can be applied for different purposes and use-cases.
The Bank of Lithuania has already rolled out its DLT sandbox dubbed LBChain project. This sandbox will allow participants to test DLT-based services in commercial banks and other financial institutions.
CBDC Developments In Asia
Asia has emerged as a leading force when it comes to experimenting with CBDC projects. Asia’s largest economy China has accelerated its CBDC developments and even entered into the testing phase.
As per a fresh report earlier this week, China’s ride-hailing giant Didi Chuxing has entered a strategic partnership with the Digital Currency Research Institute of the People’s Bank of China (PBoC). Didi, along with PBoC, will be testing the CBDC across its millions of customers.
The Bank of Japan has also released a new research paper as a Proof-of-Concept for its CBDC plans. The central bank of Japan is considering a CBDC, which can also work offline. Despite being a technologically-advanced country, Japan’s digital payments stand at only 20% of the total transactions. Using the CBDC can help the country reduce its cash dependency.
The Bank of Korea has also appointed a legal advisory for its CBDC plans. In its official statement, Korea’s central bank said: “We established the advisory group to discuss legal issues surrounding a CBDC and figure out which laws need to be revised or enacted for smooth progress in the BOK’s possible issuance of digital currency”.
India has been a mute spectator on this entire matter. There’s little to no progress seen from India as to how it plans to move ahead with its CBDC plan.