Up to 70 percent of the World’s Central Banks are actively exploring the idea of a Central Bank’s Digital Currency (CBDC). China on its part has been exploring decentralized currency now for over 5 years, despite its hardline approach to the industry.
The Bank of International Settlements (BIS) claims that seventy percent of world central banks are involved in one way or another in exploring digital money. This is because of its increasing use in the financial system and specific needs of local economies. As such, the January “Cautious Action – Central Bank Digital Currency Survey” by the BIS showed this increased interest.
The International Monetary Fund (IMF) is a global financial institution concerned with lending and monetary stability. Accordingly, the organization conducted a survey to collect its member countries views on various aspects of financial technology.
Hence, the IMF has reason to believe that Central Banks could issue CBDCs in future. This is because a Central Bank like Uruguay has already piloted CBDCs on a limited scale. Furthermore, countries like China, Sweden, and Ukraine are at the exploratory phase. In countries like Barbados and the Philippines, the Central Banks even support private sector legal digital currencies (DFCs).
The motivation for this uptick differs with respective countries. For developing countries, the most common denominator is seeking alternatives to cash use reduction. On the other hand, developing countries are looking at reducing banking costs as a real incentive.
One thing they share though is little interest in developing anonymous CDBCs. This is probably a tipping point for many Central Banks because being able to control native currencies is a key aspect of sovereignty. Accordingly, you can appreciate why most countries are not thrilled with the decentralized ideals of Bitcoin.
IMF researcher Zoltan Jakab contends that CDBCs will soon become a reality. This success is definitely contingent on popularity, influence, risks and other design characteristics. Ideally, low cost and scalable CDBCs will bode well for this transition.
China and its Potential CDBC
The rise of CDBCs is obviously something that Central Banks across the world can no longer afford to ignore. Is China any closer to having a digital equivalent to the Yuan?
China has a very centralized political system. The Communist party of China places, above all else, order as a priority for any economic or social policies. It comes as no surprise to learn that the People’s Bank of China has been doing research for over 5 years on this topic.
This is because the banks established a special research group in 2014 to study the feasibility of legal digital currency. In 2017, the bank established the Digital Currency Research Institute in Shenzhen.
China is therefore serious in its interest in the nature and sustainability of a crypto monetary system. Accordingly, the People’s Bank unveiled the PBCTFP trade finance blockchain platform at the Big Data Expo in Guiyang in 2019. The platform will facilitate trade finance in Guangdong, Hong Kong, Macau and Dawan District. It has four blockchain applications and will work with 26 banks. Therefore, this platform has the potential to cover 17,000 businesses and more than 4 billion yuan in business.
Overly, China is actively involved in exploring the horizons for crypto moving forward. The potential of CDBCs is something the world has to give its due attention.