According to a recent poll conducted by the Bank of International Settlements (BIS), around nine out of ten central banks are considering introducing a digital currency.
A CBDC is a virtual currency that functions similarly to a cryptocurrency token, except that a central authority controls its quantity and price. Some governments are considering adopting the approach as a substitute for cryptocurrency in the future.
For instance, China launched a virtual Yuan last year after announcing a ban on cryptocurrency in 2021. Governments consider CBDCs similar to cryptocurrencies because they provide the same purposes but with more stringent regulations. This element of CBDCs can reduce the desire for cryptocurrency, hence slowing the pace of adoption.
CBDC Testing Gains More Ground
According to the BIS research, nine out of ten central banks are now active in some aspect of the CBDC issuing process. Meanwhile, barely 50% of the countries operate them based on a realistic appraisal of their effectiveness. In the poll, the BIS referred to two different categories of CBDCs. One is retail CBDC, which is meant for the public’s everyday usage, and wholesale CBDCs, which are designed for massive cross-border transactions.
According to the poll’s findings, the growth of cryptos and stablecoins during Covid19 has aided the advancement of CBDC. It is said that the expansion of cryptocurrency participation has been carried out to achieve monetary sustainability in even well advanced nations.
The Biden administration is also investigating the concept of a virtual Dollar and had requested that the nation’s Federal Reserve and Treasury department work together on the issue in an executive directive issued in March.
Central Banks Prefer Retail CBDC
According to BIS, almost seven out of ten central banks are contemplating releasing retail digital money in the short to mid term. In comparison to the prior year, the number of banks that are testing cryptos has almost doubled, from 14 to 26%. Meanwhile, six out of ten economies are still in the proof-of-concept stage of development.
According to the research, banks are concentrating their efforts on retail CBDCs rather than wholesale. Developed economies are putting this technology to improve the security and efficiency of domestic payments. About 20% of federal banks create or pilot retail digital money. Moreover, it is the inverse of the number of banks concentrating on testing Wholesale electronic currency.
However, it said that 10% of the jurisdictions polled are putting legislation to facilitate the implementation of CBDC. Over 30% of Central Banks would have been ready with legal permission to commence the program within a few months. Yet, one-fourth of the national banks do not have a regulatory framework, and another 40% are unaware of their legal obligations.