By Jude Ayua
Fresh data from the Atlantic Council reveals that 134 countries have launched or are exploring central bank digital currencies (CBDCs). These countries represent 98% of global GDP, and 66 are advancing to pilot or development stages. Notably, the leading countries include China, the United Kingdom, Russia, and other European nations, while the United States remains lagging behind.
Major findings
The major findings by the Atlantic Council are as follows:
- All G20 countries are exploring a CBDC. 19 of them are in the advanced stages of CBDC exploration, while 13 countries including Brazil, Japan, India, Australia, Russia, and Turkey, are in the pilot stage.
- Three countries, the Bahamas, Jamaica and Nigeria, have launched a CBDC. While CBDC issuance has increased considerably in Nigeria and the Bahamas, all the three countries are focusing on expanding domestically.
- There are 44 ongoing CBDC pilots, including the digital euro. European countries are progressing with testing wholesale CBDCs, domestically and internationally.
- All pioneer BRICS member states, Brazil, Russia, India, China, and South Africa, are piloting a CBDC. This is mainly because the BRICS has been considering an alternative to the U. S. dollar for international payments.
- In all the countries with advanced retail CBDC projects, CBDCs are distributed through banks, financial institutions, and payment service providers.
- The U.S. is currently in partnership with the central banks of France, Japan, South Korea, Mexico, Switzerland, England, in a wholesale CBDC project, Project Agorá.
- Since the Russia-Ukraine war, and the G7 sanctions, 13 cross-border wholesale CBDC projects including Project mBridge have been introduced. Project mBridge connects banks in China, Thailand, the UAE, Hong Kong, and Saudi Arabia.
- China’s digital yuan (e-CNY), remains the largest CBDC pilot in the world as of September 2024. In June 2024, its transaction volume totaled 7 trillion e-CNY ($986 billion) across sectors such as education, healthcare, and tourism.
Read also: Introduction to Central Bank Digital Currencies (CBDCs)
What are the prospects of CBDCs?
The prospects of CBDC on global finance are determined by several factors. Generally, it has the potential of improving the payment system of countries worldwide. This improvement will depend on the goals of every CBDC project, such as efficiency in the payment system, financial inclusion, and fiscal policy.
Payment system: Central banks may build a CBDC to boost efficiency in the payment system, such as removing transfer fees or reducing transaction costs. For example, in Nigeria, the transfers with the eNaira are cost-free. Another aim may be to create and improve transparency in countries’ cash flows and fiscal policy.
Financial inclusion: One aim of a CBDC is to promote financial inclusion by creating easy access to money for the unbanked and underbanked. To achieve this, in some cases, governments offer incentives to new users and merchants or intermediaries that onboard them. However, there are challenges with this, for example, limited or lack of access to infrastructure for digital currencies and inability to sustain incentives.
International trade: CBDCs also impact foreign exchange in a significant way. The BRICS have plans to ditch the U.S. Dollars in international trade. For example, Russia legalized the use of bitcoin for international transactions and India disclosed its plan to use cryptocurrency for international trade. For these countries, a CBDC will impact their foreign exchange. They are building their CBDCs with the aim of strengthening their local currencies for international trade.
It is worth noting that every country that has launched, is piloting or developing a CBDC, has unique goals. Notably too, are the potential challenges of CBDCs; not every project may succeed eventually. Nigeria’s eNaira, for example, has failed to achieve its goal of financial inclusion. One major challenge of CBDCs is adoption. The International Monetary Fund published a paper in September 2024 to advise central banks and policymakers about CBDC adoption. Another challenge is sustainability. Countries that are building or implementing CBDCs must have a sustainability strategy.
Read also: IMF proposes framework for CBDC adoption.
About the Author: Jude Ayua is a policy analyst at CAB. A lawyer, Jude is an associate at Infusion Lawyers where he is a member of the Blockchain & Virtual Assets Group. He is also a member of the Policy & Regulations Committee of the Stakeholders in Blockchain Technology Association of Nigeria (SiBAN). Jude reports and writes on crypto policy and regulations. jude@infusionlawyers.com
