Focus on Digital Currency Overseas Central Bank Digital Currency (CBDC) Trends-Impression Observation
“Digital currency” has attracted much attention in recent years. However, this is still difficult to understand, as responses vary for each country. Mr. DCP Mio Shimomura of DeCurret Co., Ltd. contributed an article on the status and problems of digital currency, as well as future initiatives. One is the trend of overseas CBDC (Editorial Department)
The term “digital currency” has been in the news frequently recently, but many people may still be unfamiliar with it. Digital currency mainly refers to a means of payment that adopts digital technology and has the same value as the legal tender issued by countries such as the US dollar or Japanese yen, and can be widely used for payment. However, there is no uniform definition, and central banks and private companies in various countries are considering options according to their own views.
In the first part of this column, I will explain overseas Central Bank Digital Currency (CBDC) efforts, and in the second part, I will explain the trend of CBDC in Japan and privately-issued digital currencies.
CBDC Overseas Trends
A CBDC is a fiat currency-denominated digital currency issued by central banks in the same way as paper money. Many countries are considering and experimenting, and some countries have already begun to introduce it. The statements and trends of various countries on CBDC have also been reported by the news and become a topic of concern around the world.
Looking at the Central Bank Digital Currency Tracker released by the Atlantic Council, a US think tank, you can see that CBDC is being promoted in various countries.
Now, let’s look at the Bahamas, which has already issued a CBDC, and China, the United States, and Europe, which are under consideration.
The CBDC Case for the Bahamas
The Bahamas was the first country in the world to issue a CBDC in October 2020. The legal tender is the Bahamian dollar, and the issued CBDC is called the sand dollar.
Located in the Caribbean Sea, the Bahamas is an island country with a population of about 400,000 and consists of more than 700 islands. Not all islands have banks, so the challenge is that some citizens struggle to access financial services. In addition, shipping costs are high, as ships are used to transport the cash. In addition, if a natural disaster such as a hurricane disrupts the financial system or renders a financial institution’s counters and ATMs unavailable, it will take a long time to recover. Casual financial services cannot be accepted.
In order to solve such problems through the digitization of currency, we have introduced sand coins. It can be used by downloading a dedicated app from designated financial institutions, but users without a mobile device will be issued a payment card. QR code payments and domestic remittances can be made between individuals, and Sand Dollars can be used by opening a dedicated digital account even without a bank account.
It is said that with the issuance of Sand Dollars, the digitization of financial services will improve citizens’ access to financial services (inclusive finance), reduce social costs such as cash transportation costs, and quickly restore financial infrastructure after disasters. I am here.
According to the International Monetary Fund (IMF), Central Bank of the Bahamas Governor John Rolle said of his motivation for issuing the Sand Dollar, “The purpose is not to issue a CBDC. Our focus is to eliminate as many as possible.”
According to IMF data for March 2021, the circulation is 13 million sand dollars (about 2 billion yen), and its usage is still limited, but it is said to be popular among users. Due to the impact of the new coronavirus, the demand for contactless payment has increased, and the popularity of sand coins is expected to further advance in the future.
The Case for CBDC in China
In 2014, China established a research team and began activities to issue a CBDC. Since April 2020, the central bank, the People’s Bank of China, has launched the digital yuan (e-CNY), a type of CBDC, in four cities: Shenzhen, Jiangsu, Xiongan New District, Hebei, and Chengdu, Sichuan. We are conducting a demonstration experiment. At present, the target area of the demonstration experiment has been expanded to 23 cities, and it was announced in September 2022 that the target area will be further expanded to Guangdong, Jiangsu, Hebei, Sichuan and other provinces.
Especially the demonstration experiments conducted at the Beijing Winter Olympics and Winter Paralympics venues are familiar to many people and cover a wide range. The commercial bank Bank of China was designated as the operator of the digital renminbi in this Olympic demonstration experiment. A digital yuan wallet app (pilot version) was launched in January 2022 and reportedly became one of the most downloaded apps in China shortly thereafter.
The digital yuan wallet app is equipped with a payment function between terminals using NFC (Near Field Communication Technology), and payments are now available. This application is operated by a licensed commercial bank, etc. Accounts are divided into four categories according to the personal information that needs to be registered. Type 4 has a one-time payment limit of 2,000 yuan (approximately 40,000 yen), and it can be registered using only a mobile phone number. There is no upper limit on the usage amount or balance.
According to the People’s Bank of China, the use of the digital yuan will reach 260 million personal accounts by the end of December 2021, and the transaction volume will reach 100 billion yuan (about 2.7 trillion yuan) by August 2022, according to reports.
Payment services such as Alipay and WeChat Pay are widely used in China, so why did the People’s Bank of China issue a digital yuan?
The report “China’s Electronic RMB R&D Progress” released by the People’s Bank of China in July 2021 describes the background of the digital RMB work.
The first chapter introduces the four backgrounds of CBDC research and development.
- The development of the digital economy requires a new retail payment infrastructure that is secure, inclusive, and adaptable to the digital age.
- Changes in cash functions and usage environments
- The Rise of Virtual Currencies and Stablecoins for Payments
- Central banks around the world are actively researching and developing CBDC
Also, in the second half of Chapter 2, the development purpose and definitions are described below.
- Enrich the forms of cash provided by the central bank to the public, meet the public’s demand for digital cash, and support inclusive finance.
- Supporting fair competition, efficiency and security in retail payment services
- Responding to international initiatives and seeking to improve cross-border payments.
Finally, in Chapter 5, it is written that although the actual circulation has not yet been determined, we plan to continue to conduct demonstration experiments in the future to lay a solid foundation from the perspectives of monetary policy, financial system, and financial stability. Finally, the report hopes to actively participate in the international exchange of opinions on CBDC with an open and inclusive attitude, discuss the formulation of standards, and jointly promote the development of the international monetary system.
US CBDC case
In the United States, the Federal Reserve Board (FRB) plays a central role in the research and discussion of CBDCs. In January 2022, we published our first report on CBDCs.
At the beginning of the report, the report stated that “it aims to promote a broad and transparent discussion on the benefits and risks of CBDC. It also does not intend to introduce the benefits of CBDC including providing secure Implications of existing financial intermediation and ensuring privacy protection.
In March 2022, U.S. President Joe Biden signed an executive order ordering ministries and agencies to accelerate the research and development of digital assets.
This Presidential Decree includes the following seven items:
- Assess the impact of growth in the digital asset space and changes in financial markets, make policy recommendations, and protect U.S. consumers, investors, and businesses
- To the Financial Stability Oversight Board to ensure U.S. and global financial stability and address systemic risks posed by digital assets
- Relevant government agencies work with allies and partners to combat digital asset fraud and security risks
- Advancing U.S. leadership in technology and economic competitiveness to the Department of Commerce
- Treasurer prepares report on future of payments systems to promote equitable access to safe and affordable financial services
- Support the technological advancement of digital assets and ensure the responsible development and use of digital assets
- Encourage CBDC research
In September of the same year, the U.S. Department of the Treasury issued a CBDC report in response to the aforementioned executive order. In the report, in order to support FRB’s CBDC research and development work, the Ministry of Finance established an inter-ministerial working group, which will regularly verify the research progress by sharing information with relevant ministries and agencies. I decided to go.
Treasury Secretary Janet Yellen said at a press conference announcing the report that the task force will “draw on expertise across government to support the Fed’s work on CBDC.” The world will take note of the report.
The CBDC case in Europe
In October 2020, the European Central Bank (ECB) published the Digital Currency Report as a report on the digital euro. The report is the result of an eight-month working group launched in January 2020 to consider a digital euro. Together with the questions, we report the results of analyzing possible benefits and challenges.
European Central Bank President Christine Lagarde said in July 2021: “We have decided to step up the pace and launch the digital euro project. Our job is to provide citizens and businesses with the safest currency in the digital age. Purpose is to continue to provide access to central bank money
In September 2022, as part of the aforementioned project, they announced that they would begin working on prototypes with private industry. The ECB selected five companies from more than 50 applicants, explaining why they “selected the most suitable companies for each use case”. Each of the five selected companies plans to participate in the development by focusing on one use case.
・ EC site management: Amazon (e-commerce payment)
・Spanish financial institution: CaixaBank (P2P online payment)
・Payment network organization: EPI (Payer’s payment of point of sale (POS) system)
・ Italian fintech company: Nexi (Payment by POS recipient)
・Payment service provider: Worldline (P2P offline payment)
The aim, he said, is to test how well the technology underpinning the digital euro integrates with prototypes developed by businesses. The prototype is not expected to be reused in future projects, but it is a key component of the two-year research phase of the digital euro project, which is expected to be completed by October 2023.
ECB executive director Fabio Panetta said in announcing the launch of the project in July 2021 that the actual development would take about three years and that the introduction of the digital euro would reportedly take place after 2026.
This time, in addition to the Bahamas, which has already issued a CBDC, we summarize the efforts of China, the United States, and Europe. In the second part, I will tell you about Japan’s efforts in digital currency.
author
DeCurret Co., Ltd. DCP Mio Shimomura
Invested in DeCurret Co., Ltd. in 2018. After engaging in the encrypted asset trading business, he is currently the manager of the public relations team of DeCurret DCP, taking over the company’s digital currency business. In addition to corporate PR, we will focus on campaigns to raise awareness about digital currencies, which are currently unknown.
