With the rapid development of the digital economy and the increasing demand for digital financial services, the global monetary and financial system has entered the era of digital transformation, and many economies’ central banks have pressed the fast forward button on the development of digital currencies. A research report on the development of global central bank digital currency recently released by the Atlantic Council, an American think tank, shows that 105 countries and regions are currently exploring and researching central bank digital currency, of which about 50 countries and regions have entered advanced stages of development, piloting, and issuance.
Accelerate R&D pilot projects
In recent years, central banks in various economies have stepped up research and development and pilot projects on digital currencies. The latest round of central bank digital currency survey released by the Bank for International Settlements in May this year showed that of the 81 central banks participating in the survey, 90% were conducting research related to digital currency, and 62% were conducting relevant experiments or proof-of-concepts.
During the Beijing Winter Olympics, the digital RMB pilot program covered more than 400,000 scenes and became a highlight at the international event. Konstantin Ordov, director of the Financial Markets Teaching and Research Office at Russia's Plekhanov University of Economics, said that through testing during the Beijing Winter Olympics, the digital renminbi will have more complete functions and better performance, and will become a digital currency with broad prospects around the world. According to data from the People's Bank of China, as of May 31 this year, the cumulative number of digital renminbi transactions in pilot areas in 15 provinces was approximately 264 million, with an amount of approximately 83 billion yuan, and the number of merchant stores supporting digital renminbi payment reached 4.567 million.
In the Caribbean, in October 2020, The Bahamas became the first in the world to launch a central bank digital currency. In March last year, the Eastern Caribbean Central Bank launched the digital currency "DCash", making the Eastern Caribbean Monetary Union the first currency union in the world to use a central bank digital currency. Recently, Jamaica also passed legislation authorizing its central bank to issue digital currency.
In Africa, Nigeria officially launched the digital currency "e Naira" in October last year. Godwin Emefiele, Governor of the Central Bank of Nigeria, said that the government’s launch of digital currency is to supplement and strengthen the country’s payment ecology and financial structure under the new situation and maintain the integrity and stability of the payment system. At the same time, South Africa’s digital currency is in the testing phase, and countries such as Tunisia, Morocco, Ghana, and Kenya have also begun to study and formulate regulatory policies and implementation strategies for central bank digital currencies.
In Europe, the Bank for International Settlements, the Swiss and French central banks jointly announced the completion of a test project in December last year, confirming that central bank digital currencies can be effectively used for international settlements between financial institutions. In July 2021, the European Central Bank launched the digital euro project and launched a two-year related investigation and research, aiming to solve key issues such as the design and issuance of the digital euro. European Central Bank Executive Board member Panetta recently said that the formal development of the digital euro may start at the end of next year and will take about three years to complete. Tristan Disox, a professor at the Free University of Brussels in Belgium, believes that the development of the digital euro will help the euro area cope with the challenges of digital transformation, ensure that the euro area can better adapt to changes in the external financial environment, and seize a leading position in the global electronic payment field.
Promising development prospects
A report released by management consulting firm McKinsey last year showed that the macro benefits of central bank digital currencies are mainly reflected in four major dimensions, namely reducing the cost of providing cash, improving the inclusiveness of financial activities, reducing the dangers of private sector digital currencies, and strengthening the transmission of monetary policy. Analysts generally believe that central bank digital currency has many advantages and will inject new vitality into the global monetary and financial system.
Sarah Allen, an expert on European digital currencies, said that by issuing digital currencies, central banks can build more efficient and compatible financial markets and make monetary policy transmission more precise. The transparency and other characteristics of central bank digital currencies will also enable policymakers to gain a more macroscopic perspective on the global economy. Igor Pakic, an expert in the field of European digital finance, believes that digital currency can help enhance financial inclusion and inclusiveness. "People can receive, store or trade digital currencies more conveniently. For areas with underdeveloped traditional financial infrastructure, the significance of central bank digital currencies is even more prominent. It will also help to significantly improve payment efficiency, especially cross-border payments."
Senegalese economist Samba analyzed that the popularity of the Internet and smartphones has made more and more African governments and people aware of the possibility of leapfrog development of inclusive finance. Mobile payment methods in many places in East Africa, West Africa and Southern Africa have become relatively mature. The Central Bank of Kenya stated that the introduction of central bank digital currency is mainly to reduce costs, improve interconnection and strengthen cross-border payments.
Colombian economist Alfonso is very optimistic about the development prospects of central bank digital currencies in Latin America. "The development of cross-border digital payments will help drive economic recovery and growth in Latin America. Especially when natural disasters occur, the advantages of digital infrastructure are highlighted and can enhance the resilience of payment methods."
Fully unleash your potential
“Digital currencies will greatly promote the modernization of the international monetary landscape.” PwC said in a report that as digital currencies are integrated and developed in payment and financial infrastructure, they will create numerous opportunities for the further digitization of enterprises and financial institutions.
Disox believes that in the future digital economic environment, capital flows need to be seamlessly connected between banks, enterprises, individuals and machines. The central bank's digital currency will synchronize future capital flows and services, so currency digitization is the future development trend.
Regarding the development direction of digital currencies of African central banks, Samba said that many African governments have seen the technical advantages of digital currencies in saving transaction costs, increasing taxes, and combating corruption. What they need to do now is to "legalize" digital currencies, that is, to collect the "minting rights" of digital currencies in the form of issuance by national central banks, and to avoid as much as possible the excessive scale of some private cryptocurrencies that will bring instability to their own economies.
Fitch, an international credit rating agency, pointed out in a report that the development of financial markets in Latin America has a clear agenda, which is to accelerate the provision of financial services to underserved and unbanked populations. For example, when the Central Bank of the Bahamas issued a digital currency, it made it clear that its goals were to improve payment efficiency and security, reduce financial service costs, strengthen financial service inclusion, and control money laundering, counterfeit currency, and other cash fraud.
The World Economic Forum pointed out that in order to fully unleash the potential of digital currency, the advancement of payment technology needs to go hand in hand with the digitization of trade. John Rolle, Governor of the Central Bank of the Bahamas, said that The Bahamas will share experiences and learn from each other in digital currencies with other Latin American countries. "The development prospects of digital currency in this region are exciting. Potential technical cooperation may give birth to a new regional payment platform, thereby promoting the development of economic and trade within the region." (Reporter Yu Yichun, Zou Song, Zheng Bin, Bi Mengying)
