The race for Central Bank Digital Currencies (CBDCs) is at the peak as the majority of national banks are looking to deploy their own national cryptocurrency. Most nations don’t favor cryptocurrencies like Bitcoin and have been actively trying to curb their use. But in order to fight the growing popularity and use of cryptocurrencies, the regulators have taken up CBDCs as a shield.
Nations like China are all trying to build up their economy while also trying to bypass US sanctions that have been imposed. Earlier reports have revealed that nations struck with hyper-inflation due to stumbling economies often see its people turn towards crypto as a means of storing wealth. It is quite evident that the provinces with weaker economies are more prone to issue CBDCs to survive.
Developing Economies are more likely to implement CBDCs
A recent survey from the Bank for International Settlements (BIS) confirms that the emerging trend of digital currencies backed by central banks is more active in emerging economies. The survey was compiled by BIS at the end of 2019 and participants include 66 central banks around the world. Twenty-one came from advanced economies and forty-five from emerging market economies (EMEs).
The study reveals the rising CBDC trend as 80% of all participants is in the process of creating their own central bank digital currency. There has been a 10% rise since last year and 40% have already progressed from conceptual research to experiments, and 10% have developed pilot projects.
A part of the report suggests that the majority of the central banks testing their respective CBDCs all come from emerging economies. The report reads:
“EMEs generally have stronger motivations than advanced economies to work on general-purpose CBDCs (which can act as a substitute or complement to banknotes). Domestic payments efficiency, payment safety, and financial inclusion were, on average, all considered “very important” in this respect for EMEs. For advanced economies, the only motivation ranked as very important was payment safety.”
According to the BIS, the motivations of these EME institutions are “generally stronger motivations than advanced economies,” and included “domestic payments efficiency, payments safety, and financial inclusion.” The aforementioned 10% that have developed pilot projects are entirely comprised of EME institutions.
The report further discussed the question of whether central banks have obtained the legal authority to issue a wholly digital currency. On that point, only one-quarter of respondents said that they have achieved such authority.
“A central bank issuing a CBDC needs the legal authority to do so which, as in the previous survey, about a quarter of central banks have, or will soon have such authority,” the researchers noted. “A third do not have authority and about 40% remain unsure… The continued high level of uncertainty is not surprising, given that most central bank mandates predate many forms of electronic money.”
No to Crypto but yes to Stablecoins
The BIS’s survey-takers also questioned central banks on the work they’ve done on cryptocurrencies as well as stablecoins, or digital tokens that serve as synthetic stand-ins for government-issued currencies.
“For cryptocurrencies, the results are almost exactly the same as in the 2018 survey: no central banks reported any significant or wider public use of cryptocurrencies for either domestic or cross-border payments, and the usage of cryptocurrencies is considered either minimal (“trivial/no use”) or concentrated in niche groups.”
On the topic of stablecoins, the report revealed that sixty percent of surveyed central banks “are considering the impact of monetary and financial stability of ‘stablecoins’.”
“Stablecoins could find widespread adoption where cryptocurrencies have failed,” the report noted in its conclusion. “Our survey shows that more central banks could be looking at the risks outside the financial system while also exploring ways to improve the system with CBDCs.”
The Bank of International Settlements (BIS) has never been in favor of decentralized cryptocurrencies like Bitcoin, but the popularity gained by CBDCs and stablecoins in recent times have forced them to consider the various economies that are currently working on their state-backed stablecoin projects
Recently, CEO of Circle Jeremy Allaire shared similar views about stablecoins claiming that stablecoins have various other properties that should be explored and these can transform global commerce. The only question to be asked here is would these private stablecoins still exist after the emergence of CBDCs?