Cryptocurrencies have seen better days. The Russian invasion of Ukraine has shattered the belief in Bitcoin
Another approach to cryptocurrency, however, is growing in popularity around the world while showing a totally different face of blockchain payments. Central bank digital currencies, unlike Bitcoin and other first-generation crypto products, are centrally controlled by governments in the same way traditional currencies are. Despite this being the polar opposite to the idea behind decentralized, non-traceable Bitcoins, the two currency products can use the same blockchain technology. Several small countries and—as of October 2021, Nigeria—have launched their central bank digital currencies, and several more populous nations are getting ready to jump aboard a different crypto hype train.
According to the Central Bank Digital Currency Tracker by Atlantic Council, official digital currencies were launched even earlier than in Nigeria in the Caribbean, including in the Bahamas, Grenada, Dominica and Saint Lucia. The Sand Dollar of the Bahamas was the first CBDC of the world upon its launch in 2019 and set the stage for rapid adoption around the region’s small nations.
Despite making big headlines in April of 2021, the Chinese digital Yuan has not left its pilot phase more than one year after its launch. Like Nigeria, China already has a solid digital and mobile payment infrastructure. Large parts of the population in both countries leapfrogged card payments and went straight from cash to digital payments, which gained a massive following among the respective populations, may they be app or text-based. In developing countries, central banks also consider the potential of official digital currencies reaching the unbanked population.
Another reason for governments to champion digital currencies is the collection of data. In the case of China, authorities said upon the pilot launch that they will guarantee anonymity, but doubts persist. Either way, data collected on official blockchain payments could be valuable for governments—whether they utilize anonymized research or more invasive tracing like feared in China’s case.
Other countries which are in a pilot phase of a central bank digital currency include Russia, Thailand, Indonesia, South Korea, the United Arab Emirates and Saudi Arabia, even though it is unclear which program could see a proper launch next. Concrete plans to launch a CBDC are recorded by the Atlantic Council tracker in Canada, Australia, Brazil and India, among others.
The digital Euro is also in its development phase, with a pilot scheduled for 2023 in participating nations (as seen on the chart). Lithuania is the only Eurozone country with its own CBDC project, a collectible coin in its pilot phase, while Eurozone country Austria is researching a wholesale blockchain currency. As far as non-Eurozone nations go, Sweden has come the furthest in Europe, with a second pilot phase of the digital krona having wrapped up this April. A digital currency pilot happened in Ukraine in 2019 and work on the project reportedly continues despite the war.
With CBDC, for every piece of currency issued digitally, one piece of physical currency is taken out of circulation (or subtracted from new issuance) to create dedicated currency units that are traded exclusively on the blockchain.
Chartered by Statistics