A recent Coin Bureau YouTube video shed light on the rapidly growing interest in central bank digital currencies (CBDCs) worldwide. The host shared insights on how allegedly over 90% of the global central banks are now moving towards this digital currency trend.
CBDCs, essentially digital forms of fiat money, are issued by a country’s central bank and can be classified into two types: wholesale and retail.
The former is usually being developed for convenience and cost-effectiveness, while the latter might bear certain dystopian qualities such as giving the government extensive control over individual savings, spending habits, and the allocation of monetary resources.
Most countries are seemingly concentrating their efforts on retail CBDCs as a tool to sustain stability in their financial systems, challenged by issues like debt, inflation, and eroded public confidence in traditional currencies.
It is suggested that this initiative could enable governments to maintain monetary sovereignty and dodge the prospect of foreign currency takeover.
Another interesting trend is the emergence of synthetic CBDCs. These are government-controlled, centralized cryptocurrency stablecoins, backed by reserves kept at the central bank.
However, post the collapse of FTX in November, traditional CBDC development appears to have re-accelerated in the U.S. and Canada. These countries are now adopting stricter crypto regulations, viewing stablecoins as direct competitors to CBDCs.
The Bank of England has also been developing a digital pound. However, officials have assured it will not replace cash or stablecoins. This digital version of the pound aims to prevent bank runs, with individuals being limited to holdings of up to £10,000.
Meanwhile, the European Central Bank (ECB) has promised its digital euro will not be programmable and will maintain user privacy. This claim, though, has been met with skepticism by observers.
Countries like Ukraine and Russia are also pursuing their respective digital currencies, with releases expected post-resolutions of ongoing conflicts.
Interestingly, the Chinese digital yuan has been met with resistance by its citizens, while Hong Kong has piloted its own CBDC and has started embracing cryptocurrency. Several other nations, including India, Pakistan, Indonesia, Japan, Kazakhstan, Turkey, the UAE, Brazil, and Australia, are expected to rollout CBDCs in the coming years.
Despite these developments, CBDC adoption may not be as straightforward as governments hope. A prime example is Nigeria, where a mere 0.05% adoption was achieved in the first year of its e-Naira.
This underlines the challenges governments may face in driving CBDC adoption, possibly necessitating measures like inflating 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 like the Bank of England and the European Central Bank reportedly struggling to hire suitable developers.
While the future of CBDCs remains uncertain, with issues of neutrality and security at the forefront, some experts believe smaller countries are more likely to introduce CBDCs.