January 27, 2023

Central banks around the world test their own electronic currencies

Central banks around the world studythe ability to issue a central bank digital currency (CBDC), and some are already testing their currencies for various purposes. China, Singapore, Canada, the Bahamas, Thailand, Uruguay, and Sweden have significantly advanced their digital currency projects, while India has included digital rupee in the country's cryptocurrency bill.

Chinese CBDC is “almost ready”

According to a recent statement, work on CBDCChina is nearing completion. According to media reports, the People's Bank of China (PBOC) is "almost ready" to issue its own sovereign digital currency of the country. This was announced at the forum in the northern Chinese province of Heilongjiang on August 10 by Mu Changchun, deputy director of the NBK payments department.

He explained that CBDC will usea two-tier system in which the central bank and financial institutions will be legal issuers, Reuters said, noting that "digital currency will not only rely on blockchain technology, since the current blockchain technology will not be able to cope with the volume of transactions in China." The publication added that PBOC began exploring the possibility of launching its own CBDC in 2014 with the goal of “reducing the cost of circulating traditional paper money and strengthening politicians' control over the money supply.”

Testing between Singapore and Canada

Monetary Authority of Singapore (MAS) and Bank of Canadajointly conducted an experiment on cross-border cross-currency payments using CBDC. Two central banks merged their experimental domestic payment networks - Project Jasper and Project Ubin - built on two different platforms with a distributed transaction log (DLT), MAS reported in May. The experiment was conducted in collaboration with Accenture and J.P. Morgan The first supports the development of the Canadian network on Corda, and the second the Singapore network on Quorum.

“Cross-border payments today are oftenslow and expensive, ”MAS said, emphasizing that they rely on a correspondent banking network,“ at risk from the counterparty, inefficient liquidity management and cumbersome coordination. ” Therefore, the two central banks began to cooperate in the use of CBDC, “to makeThe cross-border payment process is cheaper, faster and safer. ” MAS clarified:

This is the first such test between two central banks, and it has great potential to increase efficiency and reduce risks for cross-border payments.

Bahamas tests CBDC for payments

Another country that is testing CBDC,are the Bahamas. The International Monetary Fund (IMF) released the details of its discussion with the Central Bank of the Bahamas in July, including work done within the country's CBDC. “By providing peer-to-peer transactions, for example, through e-wallets, CBDC can expand access to digital payment systems,” the IMF explained:

CBOB (Central Bank of The Bahamas)plans to test the digital version of the Bahamas dollar as a means of payment to increase the availability of financial services, especially on the small islands of the archipelago.

Noting that “issuing electronic currency maycreate risks for financial stability, cybersecurity, as well as in the field of combating money laundering and the financing of terrorism, ”the IMF staff“ recommended investing in human capital and technology to ensure a pilot and full adoption of a general purpose CBDC that is compatible with the existing financial infrastructure and complemented it. "

CBDC Multiphase Testing in Thailand

Bank of Thailand (BOT) has completed the second phasetesting its CBDC, which was called Project Inthanon. The first stage was launched in August last year to verify the concept and aimed at developing a decentralized real-time gross settlement system (RTGS), which uses CBDC based on a distributed transaction log. The second phase was from February to the present with the aim of further exploring the possibilities of using DLT in two specific areas.

The first area includes debt tokenization"tools issued by BOT, based on a distributed transaction log to achieve their life cycle goals and supply-against-payment calculations." The second is “the integration of regulatory compliance and data reconciliation functions into the payment process based on a distributed transaction log to increase process efficiency and reduce operational and legal risks.” The results of the second phase of testing were published in July.

Soon the bank will move to the third stage, with the goalwhich is testing the “DLT-based RTGS prototype,” which “will be expanded to connect to other systems to support cross-border fund transfer operations,” the BOT said. “The scope will also include regulatory and regulatory compliance issues in both Thai Baht and foreign currency.”

Uruguay, Sweden and ECCU

Last April, the Central Bank of Uruguaycompleted the CBDC retail pilot program as part of a broader government financial integration program. The pilot project began in November 2017 with the release, distribution and testing of electronic pesos, according to the Bank for International Settlements (BIS). “Transfers occurred instantly on a peer-to-peer network via mobile phones using text messages or the e-peso application.” However, the blockchain was not used. Twenty million electronic pesos were issued, and all were canceled when testing ended. The program is currently under evaluation, after which a decision can be made on further testing and a possible release.

In Sweden, Riksbank began work on a projecte-krona in the spring of 2017 in response to a multi-year decline in cash use. “E-krona will provide the general public with access to a digital addition to cash, where the state will guarantee the value of money,” the central bank website says. Although “a decision has not yet been made on the issue of electronic krona,” Riksbank confirmed that “it continues to study the possibilities of issuing electronic krona to increase competence so as to be better prepared for meeting the new digital payment market.”

East Caribbean Central Bank (ECCB)signed a contract with Barbados-based fintech company Bitt Inc. to conduct a pilot issue of CBDC under the Eastern Caribbean Monetary Union (ECCU). This experiment will involve the reliably released digital version of the East Caribbean Dollar (DXCD), which will be distributed and used by licensed financial institutions and non-banking financial institutions at ECCU. DXCD will be used for financial transactions using smart devices between consumers and sellers. “For example, a person in St. Kitts and Nevis will be able to safely send DXCD from their smartphone to a friend in Grenada in a matter of seconds, and for free for either side,” ECCB explained.

India is open to digital rupee

Indian government is currently discussinga cryptocurrency bill entitled “On the prohibition of cryptocurrency and the regulation of the official digital currency 2019”. The bill proposes to allow the government to create a digital rupee as legal tender and currency, and digital rupee is defined as “a form of currency digitally issued by the Reserve Bank and approved by the central government as legal tender”.

The bill says that “Centralthe government, together with the Central Council of the Reserve Bank, can approve digital rupee as legal tender, effective from the date and to the extent that will be determined. "

Why central banks study CBDC

In a June report, the IMF said that a numbercentral banks are exploring the issue of issuing CBDCs, noting that in advanced economies where there is a decline in cash use, this option is seen as an alternative payment method. “The main reasons for considering the CBDC are to reduce costs, increase the efficiency of the implementation of monetary policy, counter competition from cryptocurrencies, ensure competition in the payment market and offer a risk-free payment tool for the public.” The report says:

Most central banks considernon-anonymous CBDC. Almost everyone prefers a hybrid approach, which allows relevant authorities to track transactions. Some focus on a two-way approach with anonymous tokens for small savings / transactions and a monitored currency for large ones.

At the same time, countries with underdeveloped financialWith a system and a large number of citizens without bank accounts, CBDC is considered "as a means of expanding access to financial services and supporting digitalization," the IMF said, adding that "several political and technical obstacles need to be addressed, and there is still no clear need to issue a CBDC."

In late June, BIS CEO AgustinCarustens (Agustín Carstens) said that "global central banks may have to issue their own digital currencies earlier than expected," - says the Financial Times. According to Facebook's Libra reports, a number of central banks have stepped up work on their CBDCs. Agreeing with the IMF, Carstens emphasized that "there must be evidence of demand for digital currencies from the central bank, and it is not yet clear whether there is demand." Here is a quote from his words:

Many central banks are working on this; weworking on it, supporting them ... And, perhaps, the market will appear much faster than we think, and we should be ready to provide digital currencies of the central bank.

What do you think of central banks issuing their own digital currencies? Which country do you think will launch CBDC first? Write in the comments below.