Global Central Bank’s Digital Currency Development Profile

Starting in 2017, the Bank for International Settlements (BIS) will conduct an annual survey of central banks in various countries and regions around the world on the Central Bank’s Digital Currency (CBDC) to investigate their attitudes and progress towards issuing digital currencies. According to the BIS 2021 Global Central Bank Digital Currency Survey. The questionnaire received feedback from a total of 65 central banks, covering 21 developed economies and 44 emerging and developing economies, accounting for 72 % of the world’s population and 91% of global economic output.

Overall, central banks in various countries and regions have been increasing their participation in CBDC work over the past four years, with the main focus on retail applications. In 2020, 86% of the central banks surveyed will actively participate in various forms of CBDC work, and the countries and regions where these central banks are located will have high mobile phone usage, internet penetration and innovation capabilities. Central banks that do not participate actively are more attributable to smaller jurisdictions and can be generally understood as countries with smaller population densities. On the other hand, 60% of the central banks surveyed have entered the POC testing phase of the CBDC project, and 14% of the central banks have entered the pilot phase. Thus, CBDC has attracted the attention of central banks all over the world.

China: Development of DCEP Has Accelerated

China is at the forefront of the world in the layout of digital currencies. In 2020, The People’s Bank Of China issued the “China Financial Stability Report” mentioned the progress of Digital Currency Electronic Payment (DCEP) research and development, The People’s Bank Of China as one of the first to launch the central bank’s digital currency, from 2014 to accelerate progress, and in 2020 into the closed interval testing phase, has basically completed the top-level design, standard development, functional research and development, joint testing and other work, in the global leading position. As an extension of legal tender in the digital world, DCEP is endorsed by government credit and has infinite legal compensation. From the operational system, the DCEP adopts a two-tier operation system, adheres to the central management model, and the central bank converts money to the public through commercial banks or other operating institutions. In terms of reserve system and credit guarantee, DCEP pays 100% reserve to ensure that issuance and repatriation do not affect the total amount of currency issuance.

China’s digital economy will reach 35.8 trillion yuan by 2020, accounting for 36.2% of GDP. As the cornerstone of digital economy development, DCEP digitization will be the first step in the construction of digital currency in China. DCEP is different from traditional payment methods, using new technologies such as blockchain to support payment scenarios and improve transaction efficiency. The current development of DCEP focuses on serving China’s huge 1.4 billion consumers, establishing a solid retail payment system and optimizing the application of domestic retail payments.

The United States: The Unclear Attitude and Project Hamilton

Attitudes of the United States are changing because of the strong impact of digital currencies on the market. Initially, the U.S. private pioneered popular digital currencies such as Bitcoin. The U.S. Congress in 2018 is in an uncertain state, open to digital tokens. The top 10 U.S. banks have all been involved in digital money since 2020, and JPMorgan Chase announced a stable currency issue in 2019, ahead of the government. In response, the U.S. industry has long called for government legislation, starting with state laws in states such as New York State, and the government not enacting legislation until December 2019.

In 2020, under the leadership of the former U.S. Treasury Department, it was suggested that the three functions of banks (payments, deposits, loans) should be split. In January 2021, the U.S. Treasury Department followed up with a series of new policies: 

1) Allow banks to become custodians of digital currencies;

2) Allow stable currency issuers to become a new national bank (digital bank) that can operate in each state;

3) Allow banks to provide stable currency reserve services;

4) Allow banks to issue stable coins, which have no borders;

5) Suggest that the United States needs to regulate personal wallets, not just regulators (e.g. exchanges);

6) Propose the use of blockchain technology in the Fed payment network in the future.

In May 2021, the Fed announced some details of Project Hamilton. The program opened in 2020, but little information was released, and in a May 2021 speech it was mentioned that projects had been done, such as the 14% Bitcoin code developed by the program, without providing details.

Japan: Opened the First Phase of the Proof of Concept (PoC)

On April 8th，an official of the Bank of Japan said a group of seven major central banks around the world had the opportunity to set common rules and platforms for central bank digital currencies to lay the groundwork for more efficient cross-border payments. The announcement comes against the backdrop of the Bank of Japan’s digital currency entering the proof-of-concept phase.

On April 5, the Bank of Japan announced on its official website that it would begin preparing for the CBDC trial in early 2021 to explore the technical feasibility of the core functions and features of the CBDC. With the necessary preparations completed, the Bank of Japan opened the first phase of the Proof of Concept (PoC) on the same day. According to the announcement, this phase will last for one year and until March 2022. In the first phase of PoC, the bank plans to develop a test environment for the CBDC system and test the CBD against core basic functions of payment tools such as issuance, distribution and redemption, the bank said. 

The United Kingdom: Central Bank’s Working Group on Digital Currency

On 19 April, the Bank of England and the Treasury announced the joint establishment of the Central Bank’s Working Group on Digital Currency to coordinate the development of the Central Bank’s digital currency. The central bank’s digital currency will be used as a new form of digital currency issued by the Bank of England for households and businesses. Similar to the digital renminbi, the Bank of England’s digital currencies coexist with cash and bank deposits, not replace them.

In its previous statement on the central bank’s digital currency, the Bank of England also noted that the Government and the Bank of England had not yet made a final decision on whether to introduce CBDC in the UK and would further communicate with stakeholders the potential benefits, risks and feasibility of introducing CBDC. The Bank of England will also consider the impact of digital currencies on data security and user privacy.

Russia: Creating a Prototype of the Digital Ruble

On April 9th, Olga Skorobogatova, the first deputy governor of the Russian central bank, said the bank would create a prototype of the digital ruble by the end of 2021 and planned to start testing the prototype from the first quarter of 2022. In 2022, the Central Bank of Russia will draft the necessary regulatory norms to integrate its version of the central bank’s digital currency into Russia’s financial system and pilot a digital ruble prototype with banks and other financial institutions.

Sweden: Testing the Central Bank’s e-kronor

On April 6th，Sweden’s central bank said it would let banks test the central bank’s proposed digital currency, the e-kronor, in the coming year to see how well it actually handles commercial and retail payments. The Swedish central bank said that so far, the trial of the e-kronor has been conducted only in simulations within the Swedish central bank, but will be expanded in the next phase, including participants such as commercial banks.

France: The Bank of France Tests Securities Settlement Based on Digital Currencies

The French central bank, the Bank of France, is continuing its efforts to develop the European Central Bank’s Digital Currency. On Monday, the bank officially announced the successful completion of its CBDC experiment with SEBA, Switzerland’s main cryptocurrency bank. The experiment, conducted in collaboration with SEBA, Luxembourg International Bank and LuxCSD, Luxembourg’s central securities depository, used CBDC to simulate the settlement and delivery of listed securities on target2-Securities (T25), the European securities clearing engine. SEBA buys securities from Banque Internationale-Luxembourg and post-trade settlement is managed by LuxCSD.

Thailand: Testing Retail Central Bank Digital Currencies in Q2 of 2022

On April 2nd, an Assistant to the governor said the central bank would begin testing retail central bank digital currencies in the second quarter of next year and then implement them in full over the next three to five years.

Vachira Arromdee, deputy governor of the Bank of Thailand, said at a briefing that retail central bank Digital Currency (retail CBDC) was designed to provide convenient and secure financial services. “It won’t affect Thailand’s financial system,” she said. ”Vachira Arromdee noted that the central bank would consult the public by June to develop the type of digital currency.

Earlier, Thailand has begun testing the public central bank’s digital currency. In January 2020, Veerathai Santiprabhob, governor of the Bank of Thailand, told the World Economic Forum in Davos that Thailand had taken an important step forward in the central bank’s digital currency project, Inthanon. In July 2020, foreign media reported that the Central Bank of Thailand’s digital currency will enter the third phase, the use of digital currency in local companies for business-to-business transactions. It is worth noting that Thailand has cooperated with Hong Kong, Hong Kong and the Chinese mainland of China in the study of cross-border payments of the central bank’s digital currency.

Rwanda: The Central Bank of Rwanda Is Studying the Issuance of the Central Bank’s Digital Currency

June 21, Rwanda’s central bank is studying the possibility of issuing its own central bank’s digital currency to counter global digital currency trends. John Karamuka, head of payment systems, said they were considering assessing and studying the economic, financial and technical aspects associated with CBDC, as well as operating models and local conditions.

Israel: The Israeli New Shekel

In May, the Bank of Israel drafted a digital version of its legal tender, the Israeli new shekel, which allows Israelis to use digital shekels even for offline payments.

Brazil: Brazil’s Central Bank Issues CBDC Guidelines

Brazil’s central bank has issued a report setting out general guidelines for the country’s supposed Central Bank Digital Currency. While no concrete steps have been taken in this regard, at least the document acknowledges that this possibility has been discussed within the body.

Jamaica: Piloting New Central Bank Digital Currency in 2021– CARICOM Business

Minister of Finance and the Public Service Dr. Nigel Clarke says that the Bank of Jamaica’s new Central Bank Digital Currency (CBDC) will be rolled out by early 2022. According to Dr. Clarke, the project will be piloted this year, and the pilot is expected to end in December 2021 with the roll-out to commence early in 2022.

However, he cautioned that operationalizing the CBDC will require some amendments to the Bank of Jamaica (BOJ) Act to give the bank the sole right to issue digital currency as legal tender, which is the same position the BOJ has with respect to Jamaican notes and coins.

The End

For emerging markets and developing economies, the main impetus for the issuance of retail CBDC is to better implement inclusive finance. In the case of The Bahamas, for example, The Country Consists of more than 700 Islands, of which Approximately 30 are inhabited by a Total of 390,000 inhabitants. In some islands, banks do not have banking outlets, which makes it necessary for residents to conduct many businesses across the island, resulting in high thresholds for banking services and low bank account coverage. So in 2019, the Bahamas central bank launched the Sand Dollar program, becoming the first country to officially launch CBDC, helping residents without access to bank services and those without bank accounts access digital payment infrastructure or bank infrastructure.

Both economies agree that issuing retail CBDC plays a very important role in improving payment efficiency and security, but developed and developing economies differ in their perceptions of issuing retail CBDC in terms of improving monetary policy efficiency and financial stability and virtual currency expansion, thus reflecting the importance of CBDC to maintaining monetary policy and financial market stability.