2020 is a booming year for CBDC. Whether it is the pilot landing in China or the change in attitudes of the United States, Japan, South Korea and European countries, the exploration and R&D of CBDC are undergoing unprecedented “global resonance” in history.
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In 2020, the central bank digital currency (CBDC, Central Bank Digital Currency) winds spread in the global economy. Whether it is the landing of the pilot project in China or the changing attitudes of the United States, Japan, South Korea, and European countries, CBDC has started an unprecedented ” global resonance “.
To trace its origin, the concept of CBDC was proposed by economist James Tobin in The Case for Preserving Regulatory Distinctions as early as 1987 . However, no substantive progress was made in the subsequent two decades. It was not until 2013 that some countries and economies began to pay attention to CBDC and gradually deployed. It was not until this year that the CBDC concept ushered in a real “burst”.
CBDC national motives for why? What are the basic principles and characteristics of CBDC is? Where is the CBDC of each country? What’s the difference? The chain news combed the latest developments of CBDC in various countries, and brought readers to understand the CBDC that has developed so far.
Image source: dgen.org
Motivations for the implementation of CBDC in various countries
2020 is a year of booming central bank digital currency. According to the Bank for International Settlements (BIS) recently released a report on the work statistics, as of mid-July 2020, at least 36 central bank released the progress of its digital currency work. Among the 66 central banks participating in the survey, about 80% of the central banks are engaged in research, experimentation or development of digital currencies. This value was only 65% in 2017 and 71% in 2018.
From the central banks and organizations in the new position on the CBDC point of view, the countries launched CBDC sense of urgency is mainly due to external shocks. Lianwen classified it into three main reasons:
Bitcoin led to the popularity of digital assets worldwide;
The super-sovereign currency ” Libra ” proposed by Facebook brings new boundaries to the supervision of various countries;
With the outbreak of the new crown epidemic in 2020, the demand for cash payment has dropped sharply, and the transformation of digital payment methods has accelerated.
In the case of the external environment changes constantly updated, the central banks are actively exploring the financial and payment systems can cope with the construction of the CBDC, and effectively improve the efficiency of cross-border payments and domestic payments, and enhance the stability of the financial system in the field of payments.
In addition to the main reasons mentioned above, there are some subtle differences in the motives of various countries to implement CBDC:
In the early part of the launch of the country (Marshall Islands, Venezuela, etc.) CBDC the whole idea of view, the more legal digital currency is hoping to increase economic sovereignty, economic boycott and other sanctions from abroad;
For countries with stable domestic situation and economic development (China, Singapore, Sweden, etc.) , legal figures are more conducive to reducing external shocks, reducing costs and increasing efficiency in pursuit of more optimized development.
The basic principles, characteristics and classification of CBDC
CBDC often referred to as debt issued by the central bank, digital tools for payment and settlement. Due to the differences in the research and development background, objectives, and design of CBDCs of various economies, their CBDCs are also slightly different.
On October 9, the Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada, the Swiss National Bank, the Riksbank and the Bank for International Settlements jointly issued a report entitled ” Central Bank Digital Currency: Basic Principles and Core Features .” Despite the huge difference in cash usage seven economies, but seven central banks still reach a consensus on the essential features and principles of CBDC issue to be met.
The three basic principles and characteristics of CBDC
The above seven central banks believe that in order to achieve common public policy goals, central banks need to consider some basic principles when issuing CBDCs and reach an international consensus on the core features required for CBDCs. This means that if the central bank issues a CBDC in the future, its related ecosystem should be based on this principle. These three basic principles emphasize:
Central banks should not damage currency or financial stability by issuing CBDC;
CBDC need to coexist and be complementary to the existing form of currency;
CBDC should promote innovation and efficiency.
Based on these principles, CBDC must be converted, convenience, ease of use and low cost characteristics. The underlying system should have instant settlement, 24/7 availability, high throughput, scalability, interoperability, and high security, flexibility, and flexibility, and be based on appropriate standards and a clear legal framework.
Thus, we can see the difference between CBDC and other forms of currency.
Four categories of CBDC
From the type of look, CBDC type can be divided into retail and wholesale type, the former for the general public, for daily transactions, for which a specific mechanism for the large settlement; see from the way they operate, CBDC operations can be divided into single-layer and double layer operations, issued by the former central bank directly to the public, the latter first by the central bank to banks and other institutions CBDC Exchange, and then redeem these institutions to the public; from system design look, CBDC can be divided based on the account (accountbased) or on behalf of the Token -based , the former refers to transactions through digital currency accounts opened in central banks or commercial banks, and the latter refers to transactions using tokens between digital wallets through a centralized or decentralized settlement system; See rule interest, CBDC interest can be divided into type and non-interest bearing type.
BIS believes that economies with larger informal economies tend to retail CBDCs, while economies with higher levels of financial development tend to wholesale CBDCs. Wholesale CBDC type of use is limited to between central banks and financial institutions, the public does not face, a retail CBDC public is facing. For example, the People’s Bank of China RMB retail digital type, Jasper project the Bank of Canada, Ubin project Monetary Authority of Singapore, the Bank of Japan and European Central Bank are wholesale Stella project type.
At this stage, the potential impact of CBDC varies greatly due to its type, operation method, and interest calculation mechanism. Retail CBDCs that use a single-tier operation model or interest-paying have a greater impact on monetary policy transmission and financial disintermediation , while wholesale CBDCs and retail CBDCs that use a two-tier operation model without interest-paying have less impact on the financial system .
Data show that as of mid-July 2020, at least 36 central banks around the world have announced retail or wholesale CBDC jobs. Currently Ecuador, Ukraine and Uruguay have completed a pilot retail CBDC, including China, the Bahamas, Cambodia, the Eastern Caribbean Currency Union, South Korea and Sweden, six retail pilot underway CBDC.
Data source: Bank for International Settlements
Latest progress of CBDC in major global economies
BIS reports that the 66 central banks surveyed, 20% of banks in the short term issue of digital money, nearly 20% of banks are likely in the next one to six years to issue digital currency, the ratio is 2 times last year .
Lianwen sorted out the current progress of CBDC in various countries one by one:
Launched CBDC: limited results
The countries that launched CBDC before 2020 are mostly small countries with low economic status in the world, with unstable domestic economic situation , strong dependence on the US dollar or subject to US economic sanctions. For example, Ecuador (South America) , Uruguay (South America) , Senegal (Africa) , and Venezuela (South America) . The final implementation cases of CBDC launched internationally and regionally are not satisfactory and have limited results.
In 2014, the Central Bank of Ecuador launched a project called “Dinerolectrónico” (electronic money) . In this system, citizens who have passed the qualification certification can complete payment and transfer operations in supermarkets, shopping malls, banks and other places through mobile apps. But in the end, its circulation only accounted for less than 0.3% of the currency of the entire economy, so it ended in scribbling in 2018.
In the case of 2020 or landing is on trial in Lithuania LBCoin is to commemorate the 100th anniversary of the independence of Lithuania issued, more memorable; Cambodia Bakong is the new generation of payment systems, designed to improve the efficiency of payment systems And security to promote financial inclusion. However, it is worth noting that the local media “Phnom Penh Post” reported that the country’s central bank governor Chea Serey had emphasized at the press conference that Bakong is not a central bank digital currency.
CBDC in closed beta: launching more cautiously, positive closed beta
On the other hand, despite the close attention of the CBDC, mainstream economies formally launched digital currency remains more cautious, including China, Singapore, Sweden, France and other economies are still multiple range of CBDC landing tests to constantly optimize and improve Features.
China’s yuan digital electronic krone and Sweden can be said CBDC progress in a more positive and prominent projects. November 12, Deutsche Bank Research Center (Deutsche bank research) released a new economic assessment report. The report pointed out that the epidemic has accelerated the ” digital cash revolution .” In the long run, this revolution will eventually enable CBDC such as China’s digital renminbi or Sweden’s E-Krona to replace cash. Deutsche Bank also warned European policymakers in the report that if it does not develop its own central bank digital currency project in response to the positive progress of China and Sweden in this field, there will be risks in the future.
The Riksbank started the research and development of the electronic krona (E-krona) in 2017 . On February 21, 2020, the Riksbank began a test of the electronic crown. Over the past decade, Sweden’s cash usage had dropped so precipitously Riksbank development CBDC. According to the Riksbank’s statement, Sweden will first simulate the use of electronic crowns in an “isolated test environment”. It also stated that if the e-krona finally enters the market, it will be used to simulate daily banking operations, such as payments, deposits and withdrawals through digital wallets (such as mobile apps) .
The People’s Bank of China has been studying legal digital currencies since 2014 , and at the end of 2017, it organized some commercial institutions to jointly develop the digital RMB system (DC/EP) . At present, the digital renminbi system has basically completed top-level design, standard formulation, function research and development, joint debugging and testing. It is following the principles of stability, safety, controllability, innovation, and practicality. It is first in Shenzhen, Suzhou, Xiongan, Chengdu and the future. Winter Olympics scene inside a closed pilot testing.
Goldman Sachs recently released a report is expected in the next 10 years, the RMB traceable digital user (addressable users) will reach one billion, the issue is expected to reach 1.6 trillion yuan, total annual consumer payment will reach 19 trillion yuan , Saving 162 billion yuan in cost each year. With the popularization of digital renminbi, China’s banking industry is constantly eroding market share by financial technology companies, which is expected to be alleviated or even reversed.
The reason is that the Goldman Sachs report believes that as of 2019, China’s M0/M2 ratio is only 4% , which is one of the countries with the lowest cash use among major economies, and it is still declining.
In addition, China’s banking sector has also increased from counter business rates. Under the influence of the COVID-19 pandemic, before February 2020, the rate of off-counter business in China’s banking industry has reached 96% . In the view of Goldman Sachs, these advantages will be the biggest help to promote the digital renminbi.
CBDC not yet available: Demonstration of feasibility, specific R&D plans vary
In the CBDC is still available in some economies still in the exploratory stage, the need to issue CBDC of the Philippines, Japan and other countries began to consider, and Lebanon, Russia, Brazil and other countries have issued CBDC rafts schedule.
Judging from the new developments disclosed by various countries, the specific R&D plans of several large economies are different.
The Federal Reserve is evaluating the costs and benefits of CBDC, studying related legal issues, and conducting research and experiments on distributed accounting technology and its potential uses in the field of digital currencies (including CBDC) .
The Swiss National Bank has conducted research on the necessity of issuing CBDC and related technical, policy, and legal issues and determined the basic design ideas. It will decide whether to issue a wholesale CBDC in 2021, but it also pointed out that it will not issue a retail CBDC.
Japan stated that if digital yen is issued, the central bank may set an upper limit on the issuance and holdings of digital yen. Or it will start the first phase of the trial in April next year and move to the second phase in the 2021 fiscal year. Bank of Japan will be seen as strengthening the central bank currency digital tools and settlement systems, rather than monetary policy tools. In addition, even after announcing that testing will begin next year, Japan has not yet made a final decision.
Russia recognizes that the speed and adoption rate of encrypted assets are a clear challenge to the stability of the national payment system and the national financial system. It is believed that CBDC may be a ” worthy alternative ” in the encryption field, or it will eliminate the market’s demand for encrypted currencies. It is hoped that the digital currency (CBDC) that will be piloted next year can be used as a “response to the challenge formed by (encrypted assets) .”
summary
Interoperability is not just technical design issues, common standards and interfaces between different countries work CBDC, national legal and regulatory framework is a major obstacle for the CBDC and challenges of cross-border payments. In addition, the impact of cross-border CBDC on a country’s monetary policy and financial stability should also be considered.
However, it is undeniable that the digital transformation of the world economy is the general trend, and the decline in the use of cash will also inevitably affect the legal currency reform and innovation of the central banks of various countries. The large-scale emergence of new technologies and new formats has profoundly affected the global technological innovation landscape and economic trends. But at this stage whether the introduction of state-issued digital currency, digital currency to balance innovation with its national conditions, in line with national conditions to explore innovation and technology development, but also in front of the countries pressing problem.
