The crypto market has changed the pace of development over the past year and a half, with the idea behind central bank digital currencies (CBDCs) gaining increasing amounts of traction among many governments and retail banking institutions. In this regard, according to a recent study released Over 60 central banks are exploring the unique value proposition offered by CBDCs, in consultation with Vishal PwC.
In addition, it is worth mentioning that physical cash continues to be used since the start of the coronavirus pandemic. Drying Globally, many are now transitioning to digital payments to reduce potential health risks, while others have simply become accustomed to online shopping. Therefore, there are a number of reasons why a large number of countries are looking to employ CBDCs, particularly because they make it possible for people to facilitate fast, convenient, contactless remittances. But how many countries are actually ready to introduce such a solution?
To put things into perspective how much progress has been made in this area, the People’s Bank of China (PBOC) Successfully Tested Its Digital Yuan Offering – Digital currency also known as electronic payment, or DCEP – in a whole host of major commercial regions, including Shenzhen, Chengdu and Suzhou. In fact, the country reportedly wants to issue the coin for mass use. Before the start of the 2022 Winter Olympics.
Similarly, Bank of Japan has also taken an initiative following in the footsteps of PBOC Year-long test of your digital yen As a means of mapping the long-term technical/monetary viability of launching CBDCs on a large scale. The pilot is already live and is scheduled to be finished by the end of the first quarter of 2022.
What are the barriers to CBDC adoption globally?
Currently, it seems that every other country and major banking institution is interested in creating their own CBDC. However, it is hard to determine which of these players are really serious about adopting this technology. Ran “Goldie” Goldshtein, CEO of First Digital Assets Group (FirstDAG) – a firm focused on building interoperable payment rails that support CBDCs and stablecoins such as Diem – told Cointelegraph:
“I think most countries are serious about CBDCs, to the extent that there is always a core group of people leading local projects. That being said, when looking at different countries, they have different- There is different progress. I believe that these countries are different because of many factors like governance, public sentiment etc.”
Providing his thoughts on why CBDCs have not been able to enter the financial mainstream, Goldie believes that adoption has been hindered for a number of reasons, including too much red tape. In this regard, one can see that in countries such as China, Singapore and Korea, where local governments are quite active in promoting the use of future-ready technologies, these novel digital assets have been able to attract a lot of attention.
Additionally, another reason why many countries have not been able to meet their CBDC aspirations could be due to the economic devastation caused by the coronavirus pandemic, which has basically stalled the financial plans of most countries. As a result, the interest of the First Nations has waned. Goldie said, “We heard a lot about CBDCs around 2016-2018, and then, in 2019 when cryptocurrencies affected us all, everyone went silent, because tampering with digital currencies now is ‘cool. ‘ was not.”
Not all CBDCs are created equal
There are many ways to build and implement a CBDC, and according to Gerald Vota, Director of Communications at Quantum Economics, the technical aspects of a CBDC can vary greatly. As he told Cointelegraph, “many of these digital fiat currencies are being designed based on Tether and USDC, the largest stablecoins in existence.”
Furthermore, he added that any government or central authority that seeks to create a centralized version of a CBDC could potentially set itself up for economic failure, adding that such systems are regularly compromised. Goes – Citing the recent Facebook data breach As an example of a similar situation. “This can be a serious issue if the compromised information involves your country’s monetary supply,” Vota said.
On a more technical note, different CBDCs employ different architectural designs. For example, some use a time-tested framework where the flow is the central bank, then a retail bank/financial institution, then the consumer; While others opt for a more direct approach where the central bank is the only institution allowed to create, burn and distribute funds.
That said, the underlying technology in most of these projects, at least those further in their life cycle, is mostly the same. “Most of the mature projects that exist today involve the use of R3 Corda and BitInk,” Goldie said. R3’s Corda platform is an enterprise-grade blockchain solution, while Bit Inc. is a payment systems company.
Will a CBDC ever be interoperable with other digital assets?
Another pertinent question is whether CBDCs will ever reach a point in their development, one of the main challenges posed by fiat money, where people will be able to use them to facilitate cross-asset transactions – eg. For, completing payments for stablecoins and CBDCs, such as Tether (USDT), USD coin (USDC), DCEP and the Bahamian Sand Dollar.
Goldie believes that in a decade or so, there will be automated relays and payment gateways that will be able to take care of any conversion/transfer related processes that need to be completed between most CBDCs. Achieving this goal is quite simple and straightforward, highlighting the fact that infrastructure needs to be established.
In fact, there are already some unique products on the market today that help accomplish this approach, albeit in slightly different ways. For example, First DAG processes payments on behalf of merchants who wish to receive cryptocurrency, allowing them to gain greater financial exposure.
taking the next step
Recently, there have been several positive developments surrounding CBDCs. For example, after a few months of little or no progress, Sweden’s central bank, the Riksbank, result published In the first phase of its e-krona pilot project.
Not only this, but in the last few years countries like Bahamas and Cambodia have Issued its own CBDC: Sand Dollar and Bakong, respectively.
That being said, adoption of the Sand Dollar — as well as other similar offerings — has been slow. This issue has gone unnoticed, and most governments around the world have recognized the relevant risks associated with engaging in large-scale CBDC projects.
Therefore, it will be interesting to see how determined governments are to continue their efforts to have a functional, well-integrated CBDC, especially as China’s much talked about DCEP project gets ready for mainstream deployment. If successful, it stands to reason that more and more countries will follow in the footsteps of the country and create their own CBDCs.