The Atlantic Council’s Central Bank Digital Tracker is an interactive tool that provides a comprehensive and up-to-date picture of the state of central bank digital currency (CBDC) development around the world. It tracks the progress of 130 countries, representing 98% of global GDP, that are exploring or implementing a CBDC. The tracker also shows the specific technology and security choices countries are making in their CBDC designs, as well as the potential benefits and challenges of issuing a CBDC.
Overview of Adoption
According to the tracker, as of July 2023, 11 countries have fully launched a CBDC, 14 are in pilot stage, 15 are in development stage, and 33 are in research stage. The remaining 57 countries are either inactive or have no data available. The tracker also categorizes CBDCs into retail (for general use by the public) and wholesale (for specific use by financial institutions), as well as cross-border (for facilitating international payments). Some of the countries that have formally introduced a CBDC or are close to doing so are:
China: The People’s Bank of China has been developing its Digital Currency Electronic Payment (DCEP) system since 2014, and has conducted several trials in various cities since 2020. The DCEP is intended to complement cash and enhance the efficiency and convenience of retail payments. It uses a two-tier system, where the central bank issues digital yuan to authorized intermediaries (such as banks), who then distribute them to users through digital wallets. The DCEP adopts a controllable anonymity approach, where transactions are traceable by the central bank but not by other parties. What a surprise.
Bahamas: The Central Bank of The Bahamas launched its Sand Dollar project in 2018, and became the first country to issue a nationwide CBDC in October 2020. The Sand Dollar is pegged to the Bahamian dollar and aims to improve financial inclusion and resilience in the face of natural disasters. It uses a distributed ledger technology platform that allows users to transact through mobile phones or smart cards. The Sand Dollar follows a know-your-customer principle, where users have to verify their identity before accessing the service.
Nigeria: The Central Bank of Nigeria launched its eNaira project in October 2021, becoming the first African country to issue a CBDC. The eNaira is pegged to the Nigerian naira and aims to improve financial inclusion, enhance cross-border remittances, and facilitate monetary policy implementation. It uses a hybrid system, where the central bank issues eNaira to authorized financial institutions, who then distribute them to users through digital wallets. The eNaira follows a tiered identification system, where users have different transaction limits depending on their level of verification.
Jamaica: The Bank of Jamaica launched its CBDC pilot in August 2021, in collaboration with eCurrency Mint Limited, a technology provider. The CBDC is also pegged to the Jamaican dollar and intends to increase financial access, efficiency and innovation in the payment system. It uses a similar system as Nigeria, where the central bank issues CBDC to authorized deposit-taking institutions, who then distribute them to users through digital wallets. The CBDC follows a full identification system, where users have to provide their national identification number and biometric data before accessing the service.
Takeaways So Far
These are just some of the examples of how different countries are experimenting with CBDCs. There is no one-size-fits-all approach to designing and implementing a CBDC, as each country has to consider its own economic, social and institutional context. However, there is also scope for international cooperation and coordination, as CBDCs may have spillover effects on other jurisdictions. Therefore, it is important for countries to share their experiences and learn from each other.
Examples of Rejected Central Bank Digital Currencies
A CBDC is a novel and complex phenomenon that has both opportunities and challenges for the future of money and payments. Whether or not a CBDC is beneficial for a country depends on how it is designed and regulated, and how the market and consumers react to it. Ultimately, the decision to introduce a CBDC should be based on a careful assessment of the costs and benefits for the public interest. However, not all countries are keen on pursuing a CBDC project. Some countries have decided to slow down or drop out of the race altogether after conducting research or pilot tests. Some of the reasons for abandoning a CBDC are:
Lack of demand: Some countries have found that there is no strong need or demand for a CBDC among their citizens or businesses, especially if they already have an efficient and secure payment system that offers various digital options. For example, Denmark decided not to launch a CBDC in 2017, after concluding that it would do little to improve the country’s financial infrastructure, which already provides instant payment options.
Technical challenges: Some countries have encountered technical difficulties or limitations in developing or testing a CBDC, such as scalability, interoperability, security, or privacy issues. For example, Japan has been cautious about issuing a CBDC, citing concerns about its impact on the existing payment system and financial stability. The Bank of Japan has been conducting experiments on a CBDC since 2021, but has not yet committed to launching one.
Legal and regulatory hurdles: Some countries have faced legal and regulatory obstacles or uncertainties in introducing a CBDC, such as defining the legal status, rights and obligations of the CBDC users, issuers and intermediaries, as well as ensuring compliance with anti-money laundering, counter-terrorism financing and data protection rules. For example, Ecuador launched a CBDC pilot in 2014, but discontinued it in 2018, after facing opposition from the banking sector and the legislature.
Political and social factors: Some countries have been influenced by political and social factors that may affect their willingness or ability to issue a CBDC, such as public trust, political stability, social acceptance, or international relations. For example, Finland decided not to pursue a CBDC in 2018, after considering the potential implications for the European Union and the eurozone.
These are just some of the examples of how different countries have abandoned the idea of a CBDC. There may be other reasons or circumstances that may lead a country to reconsider or postpone its CBDC plans. However, this does not mean that these countries will never issue a CBDC in the future. They may resume their CBDC projects if the situation changes or if new opportunities arise. The Bank of England is currently consulting on introducing a digital pound and would be well advised to study the results so far in other countries that are further along in their digital currency journey.
In Conclusion
A CBDC is not a panacea or a silver bullet for all the challenges or problems that a country may face in its monetary and financial system. It is also not a one-size-fits-all solution that can be easily replicated or adopted by any country. It is a complex and context-specific innovation that requires careful analysis and evaluation before implementation. Therefore, it is important for countries to weigh the pros and cons of issuing a CBDC and to make informed and prudent decisions based on their own needs and circumstances.
