A recent YouTube Coin Bureau video highlighted the rapidly growing interest in central bank digital currencies (CBDCs) around the world. The host shared insights on how over 90% of global central banks are now allegedly moving towards this digital currency direction.
CBDCs, which are digital forms of fiat money, are issued by a country’s central bank and can be categorized into two types: wholesale and retail.
The former is usually developed for the sake of convenience and cost-effectiveness, while the latter may exhibit some miserable qualities such as giving the government broad control over individual savings, spending habits, and allocation of monetary resources.
(embed) https://www.youtube.com/watch?v=lTb-8N4r6zA (/embed)
Most countries seem to be focusing their efforts on digital currency retail banking as a tool to maintain stability in their financial systems, as they are challenged by issues such as debt, inflation, and the erosion of public confidence in traditional currencies.
It is suggested that this initiative can enable governments to maintain monetary sovereignty and avoid the possibility of foreign currency seizure.
Another interesting trend is the emergence of synthetic CBDCs. These are government-controlled stable cryptocurrencies, backed by reserves held at the central bank.
However, after the collapse of FTX in November, the development of traditional CBDCs appears to have accelerated in the United States and Canada. These countries are now adopting stricter crypto regulations, and stablecoins are direct competitors to central bank digital currencies.
The Bank of England has also developed the digital pound. However, the officials emphasized that it will not replace cash or stablecoins. This digital version of the pound aims to prevent bank runs, with individuals limited to holdings of up to £10,000.
Meanwhile, the European Central Bank (ECB) has promised that its digital euro will not be programmable and will maintain user privacy. This claim, however, has been met with skepticism by observers.
Countries like Ukraine and Russia are also pursuing digital currencies of their own, with releases expected after ongoing disputes are resolved.
Interestingly, China’s digital yuan has met resistance from its own citizens, while Hong Kong has been piloting its own central bank digital currency and has begun to embrace cryptocurrency. Several other countries including India, Pakistan, Indonesia, Japan, Kazakhstan, Turkey, UAE, Brazil and Australia are expected to introduce CBDCs in the coming years.
Despite these developments, CBDC adoption may not be as straightforward as governments hope. A notable example is Nigeria, where only 0.05% adoption was achieved in the first year of e-Naira implementation.
This underscores the challenges governments may face in driving CBDC adoption, and may necessitate measures such as inflation of fiat currencies, triggering a banking crisis, or offering CBDCs as a form of universal basic income.
However, there are hurdles in the development phase as well, with institutions such as the Bank of England and the European Central Bank reportedly struggling to recruit suitable developers.
While the future of CBDCs remains uncertain, with issues of neutrality and security at the forefront, some experts believe that smaller countries are more likely to introduce CBDCs.