Ever since cryptocurrencies have become mainstream and adoption has been global, regulators have grappled with the concept of a blockchain based form of digital currency. The proliferation of cryptocurrencies have been wide and its being used by millions across the world, primarily for investment & trading purposes and sometimes for P2P payments. Despite concerns of investments being lost, cryptocurrencies have grown in market capitalization. People have made money for their crypto investments because their value has grown dramatically over a short period of time.
Capital market regulators have by and large accepted the cryptocurrency ecosystem after being initially resistant to the idea. But on the other hand, central banks have tried to come to terms with this new form of money which has grown across the world in a decentralized fashion. The idea of cryptocurrencies or digital assets as we know them flies straight into the fundamentals of fiat currencies because they aren’t a legal tender backed by the laws of a particular country and issued by the central bank.
Given the growth of digital currencies, central banks have jumped the bandwagon and some are in very advanced stages of rolling out a digital currency or have started testing the idea of a digital currency, from the Bahamas to Turkey and France to Thailand, a growing handful number of countries are on the fast track to introduce their own CBDC (Central Bank Digital Currency).
Central banks realize that digital currencies are cheaper to make and are beneficial to the idea of faster and effecting domestic and international payments. The costs of printing physical money is huge for any Central Bank, hence the inclination towards Digital Currencies. In fact since the launch of Blockchain based Barbadian Dollar in Barbados, small merchants in the small Caribbean island have reduced cost of accepting payments and save on the cost of cash security, spurring e-commerce like never before.
Along with the natural benefits of cost and accessibility that comes with digital currencies, there is the element of financial inclusion that’s a big benefit of a CBDC. Marshall Island’s plan to issue a CBDC hinges on the reality that they might lose their connection to the global financial ecosystem as the singular commercial bank which operates in the island closes shop due to unprofitability. The government therefore realizes that a blockchain based digital currency will not only ensure the continuity of basic financial services but also do a some public good.
CBDC as a financial instrument has immense potential to spur inclusion in remote areas of the developing world which may not be connected to the global financial ecosystem. In India for example, around 190 million people don’t have access to Bank accounts. For China, the number is even greater. Hence, Financial inclusion is a critical benefit for a Central Bank to issue a Digital Currency, especially in developing and underdeveloped economies.
In 2019, the Chinese government announced that it would launch a Digital Yuan, which effectively made it the first global economic superpower to think about CBDCs. While the project is still being tested and in a pilot stage, recently China has announced a major expansion of testing its digital currency to the most developed cities and region, especially in the southern parts of the country, including Hong Kong & Macau.
Corporations owned by Tencent are working the People’s Bank of China to test the Digital Yuan. These include food retailer Meituan-Dianping, video-streaming platform Bilibili and ride-hailing startup Didi Chuxing. In addition to making digital payments easier, the PBOC has also said that a Digital Yuan will be panacea to combat terrorism financing, gambling, and money laundering. The larger focus of the Chinese government is to upgrade the economy through a sustained focus on emerging technologies such as Blockchain & AI.
Shifting focus to South Korea, Bank of Korea is reportedly seeking a consulting partner to start the technical phase of a Digital Won. They have already completed phase one of their pilot program and are looking for a partner o build the architecture and data security components of the Digital Won. Korea is not in a hurry to introduce its Digital Currency but its preparing the ground for the right launch time, as and when other CBDCs from the region are ready to hit the market.
South Korea is certainly not new to the world of digital currencies, they are one of the first countries to introduce regulation free crypto zones, where crypto payments are accepted with an objective to boost the local economy. In fact, Decentralization forms a core policy ingredient for the South Korean government. The intention and the seriousness can be seen from the top. President Moon Jae-in has said, “The Government will further accelerate regulatory innovation while enhancing the strengths of local areas through decentralization.” South Korea is clearly well positioned to become a digital currency friendly country from a regulatory standpoint.
Given the impetus towards CBDC by major Asian governments such as China & South Korea, the far east has certainly taken a lead when it comes to scaling the cause of CBDCs and driving global thrust towards CBDCs. One can definitely conclude by saying, Digital Currencies are here to stay, and their case grows only stronger when they are backed by Central Banks to be used as a legal tender for completing transactions.
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Sid has been a content solutions evangelist and a digital marketer for 10+ years. Having written for brands such as IBM, Infosys and other technology corporations and startups, he is always at the cutting edge of researching & writing about emerging technologies.
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