Green indicates announcement of development of a CBDC or other state-backed cryptocurrency. Yellow indicates interest in state-backed or state-affiliated cryptocurrency, but unresolved research or legal hangups have progress deadlocked. Yellow also indicates private-sector lead stablecoin development. Red indicates a current aversion to the idea of a CBDC, or general cryptocurrency.
Up until this point in time, cryptocurrencies have largely denoted a peer-to-peer payment mechanism to which commerce occurs through network consensus. While showing limited success in certain capacities and major promise in others, this model has faced criticism in its failure to assure true decentralization, with network users often finding themselves beholden to the coin’s miners, developer team, steering committee, governance council, or some other bottleneck. In this sense, decentralization seems much more far-removed than initially intended.
With this pitfall being well-documented, governments have taken note and have begun pursuing models which would assert government control over the monetary policy and policing of disputes involved within a cryptocurrency payment scheme. This new model of token has been termed “Central Bank Digital Currency” (CBDC), as given the token’s creation and issuance seeing primary oversight from the Central Bank. A surprisingly large number of major nations across the world have begun taking notice of this payment paradigm and have acted in accordance with gaining greater understanding about the mechanics to which it entails. Below we have the opinions and actions taken from the global top 30 countries by GDP.
The United States currently has ambiguity toward the idea of a CBDC but sees promise in its end. Currently hosting the world’s monetary standard with a currency widely distributed across the globe, the United States has too much at stake for being the first mover toward a CBDC. However, the private sector has produced a large number of stablecoins denominated in the US Dollar, which may serve to supplement future development of a CBDC. On the institutional tokenization of tradeable assets front, both the CFTC and SEC have established that secured digital asset trading will be prevalent in the future. While not Federal, state legislative movement on the normalization of cryptocurrency for payments routed to bureaucratic functions will continue to add to the case for implementations on a national level.
The People’s Bank of China is fervently working on a CBDC to match their global hegemony in the mobile payments arena and their movement in the distributed ledger ecosystem. To date, China has published over 40 patents toward their CBDC and have laid out the designs for the mechanics behind the wallet storing the state-backed cryptocurrency. Showing a dedicated commitment toward embracing the model of a CBDC sooner over later, the government of China continues to expand the activities of its Digital Currency Research Lab whilst the nation’s largest e-commerce giant jumps ahead in the global blockchain patent race.
While the Bank of Japan’s Deputy Governor has taken the stance that central bank-issued digital currencies aren’t effective economic tools, Japanese financial groups are developing their own respective digital stablecoins, tethered to the Japanese yen at a 1:1 ratio.
The ministry of Germany has resolved the idea of a CBDC to be “too risky”, citing concerns over a lack of bank independence and a larger scope of potential damage if there were a digital currency to be implemented. Although the public administration is skeptical of benefits at this time, crypto startups touting ubiquitous payment structures that dovetail with the country’s increasing emphasis on Internet-of-Things connectivity bodes possible grassroots currency initiatives from the private sector bubbling up to the bureaucratic scope.
The UK has committed two working papers to better understand and draw conclusions about the viability of a CBDC within the Bank of England. The first paper derived results that, through approximations, there is no reason to believe that introducing a CBDC would have an adverse effect on private credit or on total liquidity provision to the economy. The second paper had more ominous implications for banking, in that the CBDC would endanger the current profitable business model used by commercial banks — namely the storage of individuals’ and corporations’ cash holdings. While the Bank of England’s governor is “open-minded, but hesitant” about the idea of a CBDC for the UK, the UK isn’t likely to have the distinction as the first developed nation to adopt a CBDC, but may contribute invaluable research through its top-tier university initiatives.
While the Bank of France has commented on the use of digital currencies, even going so far as to cite circumstances which would make them attractive for adoption, there has been little news as of late about developments on this front. While the concept of the nationalized cryptocurrency may be quiet, France is implementing new regulations which seek to foster a community-driven cryptoecosystem with government oversight and state-backed support on innovation.
The Reserve Bank of India has been proactive in its effort to move toward a CBDC with its creation of an inter-departmental group tasked with analyzing the usefulness of issuing a rupee-backed digital currency. Citing major cost savings and a mind for modernizarion, there is great enthusiasm on the part of India’s Central Bank to move off from tangible tender toward a more consolidated digital payments system.
The administration in Italy seems to be taking a conservative position on the idea of CBDCs at this time, as well. The Bank of Italy’s governor has stated publicly that “central banks aren’t ready to handle the implications of launching wholly digital currencies”.
Little word has come from Brazil on its leaders’ positions on developing a CBDC for their central bank, although an R3 study got into what a few implementation specifics might look like for the developing nation.
The Bank of Canada has drawn up an opinion that interest-bearing benefits could result from a CBDC, but more research needs to be conducted before a CBDC becomes a realistic option. In a paper produced by the Bank, a favorable outlook of a CBDC was provided in its ability to combat a loss of seignorage by banks, reduce transaction fees, and provide more financial inclusion. A further research study by the Bank discussed the advantages of a CBDC when it comes to bearing interest. Showing initiative on the local level, the city of Calgary has created and issued a city-wide cryptocurrency for fostering small business development.
While the Bank of South Korea has indicated it is in no rush to get a CBDC anytime soon, research and progress continues to be made toward that end. Recently, a South Korea-based company has launched the very first 1:1 crypto-won stablecoin, opening the door to further opportunities with government. As well, the mayor of Seoul has previously mentioned that the future launch of an “S-Coin” for the city may provide denizens an opportunity to reduce costs for municipal services around the city, all the while complementing Seoul’s smart city city initiatives.
Since late 2017, the CryptoRuble has been firmly set as a digital currency development within the future of the Russian nation. While the CryptoRuble is set to have its administration’s backing, sources vary on whether the coin will be launched mid-year, or if other indicators denote a later release.
While there is no formal movement yet, the Spanish Bank has published a report discussing the state of cryptocurrencies and the future of a CBDC for Spain. Within the private sector, the Spanish Santander Bank has previously shown its readiness to participate in payments trials involving distributed ledger technology.
While the Australian administration seems to be paying attention to the dialogue about CBDCs, they have taken the stance that there isn’t enough of a value proposition at this point in time and that demand isn’t really there. Their multiple hangups are mimic England’s “wait-and-see” approach, and is likely to have Australia maintain the status quo rather than adopt the e-AUD anytime soon.
The Bank of Mexico has not shown any particular initiative toward a CBDC, although they have reversed previous hardline stances against cryptocurrency and have since been conducive to fostering innovation with their regulations.
The Bank of Indonesia’s uncertainty about the future of CBDCs has compelled them to initiate a study about digital currencies within central banking, which is set to be completed in 2020.
The Dutch National Bank has been highly critical of cryptocurrency given the risks associated with its trading, and remains skeptical that there is a benefit to the CBDC model until more evidence to the contrary comes to light.
Saudi Arabia, in collaboration with the United Arab Emirates, have launched a joint state-backed cryptocurrency that will be limited to banks until the governments have better knowledge about how blockchain functions across borders.
While there continues to float debate around the subject, the Central Bank of the Republic of Turkey has made no formal moves toward a CBDC.
The Swiss National Bank has discussed the idea of a CBDC at great length, but has arrived at the conclusion that the infancy of the concept would threaten financial stability. Moreover, while the idea of a Swiss e-franc bodes promise, especially for a country known for harboring crypto startups, bank authorities haven’t yet found enough of a value proposition to consider a realistic action plan for implementation. Still, consideration remains present.
While Taiwan’s Central Bank preaches admonition regarding CBDCs, the country is known for being one of the leading hubs for distributed ledger technology. On the local level, the city of Kaohsiung has announced the launch of a city-based stablecoin for sometime in 2019. The city of Taipei meanwhile has been using an internet-of-things cryptocurrency for its smart city initiatives since 2018.
The Central Bank of Sweden, Riksbank, has graduated the country from an already cashless society to one that will have a CBDC, termed the e-Krona. Pilots of the new technology initiative are set for 2019, with the plan for implementation in 2021. Upon launch, the CBDC will be staged to compliment the incumbent currency, with the intent to replace it later on.
The Polish Administration is proceeding slowly with cryptocurrency regulation, having recently set tax guidelines. There has been no telling discussion or movement toward a CBDC.
While the Belgium administration has been on top of monitoring fraudulent cryptocurrency activity happening in the space, there has been little opinion from the National Bank of Belgium other than to “stay prudent”.
The Bank of Thailand has recently announced its central bank digital currency project called Inthanon. In an implementation of a wholesale CBDC with eight of the country’s largest commercial banks, the Bank of Thailand and the commercial banks will seek to jointly design and develop the prototype system of money transfer between institutions.
The Bank of Argentina has shown no interest toward a CBDC, but continues to accommodate for a commercial activity using cryptocurrencies.
While there has been silence on a CBDC from Austria’s Central Bank, the nation’s capital city has recently launched “Vienna Token”, which will serve as an incentive for citizens to give feedback on the city and government projects.
The Central Bank of Norway, Norges Bank, have set the wheels in motion for a CBDC for the country in the future. In a report, the Central Bank discusses that banking needs to modernize to meet the needs of a cashless populous, and suggests CBDC as way of achieving that end. Further clarificationdetails that the proposed CBDC will serve as a supplement, not replacement, for cash.
United Arab Emirates
See Saudi Arabia for the joint state-backed cryptocurrency venture. Additionally, Dubai — in its Dubai 2020 initiative — is seeking to become the first blockchain-powered government.
In an effort to mitigate the damage done by the US economic sanctions which keep Iran off of the SWIFT banking system, the Iran government has recently launched a gold-backed nationalized cryptocurrency, which seeks to tokenize its current currency as a tool for commerce.
In examining the global top 30 countries by GDP, 14 of those listed are actively engaged in developing a CBDC, have a well-backed substitute cryptocurrency that ties to the national currency, or currently have a CBDC in operation. Of those remaining, many are actively contributing to research on how a CBDC would work within an economy. Only a select few of these countries have either committed zero effort toward initiating discussion or have otherwise displayed aversion toward the concept. It is my best judgement that it is fair to say that there is considerable interest by national governments with regards to gaining a better understanding about the viability of state-backed cryptocurrency for wholesale and retail use within societal confines.
The idea of state-backed digital currencies comes with many questions. If we can implement the capacity for negative interest rates in the bulk of commercial banking, will we be able to mitigate bank runs, bank consolidations, and bank closures? What is the threshold of user anonymity in transactions when it comes to CBDCs? Will there be transaction reversals, and will they be as easy to manage as they currently are in the SWIFT system? Will this system be as secure (or moreso) than the SWIFT banking system? Will there be digital miners mining this state-backed cryptocurrency? Will the government subsidize these miners in order to assure them of a fair (non-volatile) wage, and to maintain the security of the network?
In pioneering this new territory, these and many other questions will be asked and answered in unique ways specific to the country’s needs and economic situation.
Devon Rusinek is a distributed ledger consultant at TxMQ’s Disruptive Technologies Group. He participates in analysis and discussion of key areas within the distributed ledger space including tokenization, micropayments, and supply chain management. LinkedIn Twitter