The cryptocurrency revolution has been around since the launch of Bitcoin in 2009. Since then, there have been speculations that digital currencies can become mainstream over time. The development of Bitcoin and other crypto assets has continued to put pressure on conventional financial institutions as more futuristic investors continue to adopt the trend.
Types of Digital Currency
Aside from Bitcoin, other digital currencies have sprung up, known as Alt coins. Several crypto assets in the market have been focused on solving different aspects of the financial space despite being affected by market volatility. One major challenge faced by pioneer digital assets like Bitcoin and Ethereum is that their prices fluctuate significantly, making them extremely difficult to use them as a day-to-day transactional money.
A different kind of crypto asset, known as Stablecoin, popped up to tackle the volatility issue. Stablecoins are essentially digital money with fiat-like characteristics, making them an incredibly desirable choice for payments. Some popular stablecoins include USDT and USDC; both of these are backed by the US dollar. In layman’s terms, one USDT equals one dollar.
The stability characteristic makes stablecoins a desirable asset for immediate use as a currency as opposed to crypto coins like Bitcoin, which are often bought and held for their ability to appreciate in value.
One unique stablecoin is the Central Bank Digital Currency, a government-focused currency that mimics the values of any government’s local fiat currency, so what exactly is CBDC?
What is a CBDC
The CBDC essentially means that a country’s central bank decided to develop a blockchain-based token to replace its fiat. The stability of a centralized digital currency compared to that of speculative digital assets like Bitcoin and Ethereum makes it a good option for governments. Governments can therefore control the development of these coins, and its issuance.
Essentially these digital currencies replace the physical printing of coins with blockchain minting, making the entire process transparent. CBDC can help control inflation and prevent money laundering activities under a government’s nose. Such qualities, among others, makes it a lucrative choice for most governments. Unlike conventional digital assets with unstable value, government-focused coins can be stable, reliable, and easily transferable.
Importance of Central Bank Digital Currency
There are several incentives to consider using Centralized Digital currencies for governments. Below are some of the most common reasons countries are considering it.
- Helps in Financial inclusion
In some countries, inclusion is still significantly low, and a centralized digital system can be instrumental increasing financial inclusion. Centralized digital currencies can spark competition that will, in turn, reduce the cost of accessing financial services and broaden the scope, making financial services accessible to more people.
- Ensures Monetary Sovereignty
Since there is a general acceptance that digital coins are here to stay, the central banks may as well level up to the game to maintain their sovereignty. The centralized tokens can help governments maintain their financial power and protect their local fiat from other digital assets and CBDCs, by developing one of their own to compete with global currencies.
- Allows access to Digital Economy
The digital economy is continuously growing worldwide, and governments are keen to tap into the market. Creating an easy infrastructure that allows citizens to participate in these economies legally ensures the economy’s growth in general. By using a currency that is controlled by the central bank, the country’s economy.
- Minimized misappropriation of public money
Crypto coins promote transparency and accountability. Using blockchain technology to mint and transfer local cryptocurrency is a huge step toward increasing financial accountability within the government and its employees.
Countries Planning a New CBDC
There are several countries around the world that have already adopted the centralized digital currency system according to Wikipedia. Other places are behind the ball but still making plans to adopt it. Below, is a list of the countries that are either already using the system or are in the process. The list is constantly growing as many countries continuously reevaluate their stand.
- Eastern Caribbean Union.
A union of seven eastern Caribbean countries developed a common digital currency to help speed up transactions and serve the unbanked.
The Jamaican government, through its central bank, has completed testing the digital Jamaican dollar, which is expected to roll out in 2022.
- The Bahamas.
The Bahamas’ central bank issued the Sand dollar in 2020, becoming the first centralized digital currency backed by the government in the world.
The Nigerian government, through its central bank, became the first African country to commission the development of a Centralized coins in October 2021.
The concept of centralized digital currency is still under research in Mexico, plans indicate the development could be completed by 2024.
- United Kingdom
The concept of centralized digital currency is still under research in the UK, with a high probability of actualization.
The Swedish government is testing e-Krona. It’s coming soon.
A transcontinental country with 77% in Asia and 23% in Europe. The Bank of Russia, has recently completed its initial tests of the digital Ruble as of February 2022, and plans to roll out the currency to the public are underway.
The Indian government intends to introduce a digital Rupee planned to be operational between 2022-2023.
The Pakistani government announced plans to develop a digital currency in 2019 expected time of actualization is 2025.
China is the first world large economy to test the feasibility of a digital currency, stating that The People’s Bank of China intends to make the digital yuan widely used in China by 2022.
The Canadian government is still in the preliminary stages of commissioning a digital currency but it’s clear there will be one.
The USA’s digital asset is under the research phase as the current administration aims to promote innovations in the digital sector.
Having a universal, yet stable cryptocurrency as a country is a major step for any country. It helps to increase accountability, reduce corruption and curb money laundering that severely hurts a country’s economy. The above countries have demonstrated the need to adopt the progressive technology that benefits the economy. More countries will emulate them as the financial industry continues to evolve.