Ever since Facebook announced the dawn of its Libra project midway through this year, governments around the world have been forced to examine the question of the role that digital currencies should play in a global society.
Indeed, the responses of regulators around the world seemed to fall along a spectrum: on one extreme, regulators doubled down on their anti-digital currency sentiments: Libra should not be allowed, and maybe other cryptocurrencies should be put back in their place as illegal and dangerous financial instruments, too.
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Somewhere toward the other end of the spectrum, however, is the attitude that while Libra shouldn’t be allowed to position itself as one of the largest and most powerful financial forces in the world, that perhaps digital currencies shouldn’t be left to the wayside as a sort of financial novelty or pariah.
Instead, a growing number of governments seem to be adopting the attitude that the concept of digital currencies should be embraced, and in fact, that they should start to create their own digital currencies issued by their central banks–Central Bank Digital Currencies, or CBDCs.
Countries around the world are pushing ahead effort to explore CBDC issuance following the dawn of Libra
Indeed, even before Libra was announced by Facebook, the development and exploration of CBDCs in a number of countries around the world were well underway.
For example, the International Monetary Fund (IMF) believes that central banks may issue digital currencies in the future. According to a report by the IMF on June 27th, less than two weeks after Libra was officially announced.
A second report published by the Bank of International Settlements (BIS) published in January 2019 found that as many as 70 percent of the world’s central banks were in the process of researching the issuance of a CBDC, although only several had concrete plans to do so.
At the time, Sweden and Uruguay were named as the two jurisdictions in which CBDC issuance was the most advanced.
However, in the time since the report was published, a number of other nations have pushed forward with the development of CBDCs–France, South Africa, Ghana, Uruguay, Singapore, Thailand, Russia, and many others are all somewhere along the spectrum of CBDC research, development, and issuance; some nations, including Tunisia, the Marshall Islands, and a few others have already adopted their own digital currencies.
If Libra never happens, will countries still be interested in launching CBDCs?
Additionally, Reuters reported in early November that the European Union was ramping up efforts to explore the creation of a CBDC of its own.
At the ‘Global Blockchain Congress, which took place in Malaga, Spain, last month, ECB Innovation leader Dirk Bullman said that we have a dedicated team looking at this in the ECB. Even if we’re not particularly vocal on this compared to other central banks, we’ve been doing a lot in the past.”
And then, of course, there’s China.
China originally said that it was exploring the issuance of a national digital currency long before Libra was on the horizon; however, after Libra was announced midway through the year, China announced that it would be expediting the creation of the currency, with the original date of launch expected in November (those expectations were never met.)
However, the People’s Bank of China (PBoC) is planning to launch its central bank-backed digital currency (CBDC) in two cities – Shenzhen and Suzhou – initially for testing purposes, perhaps even before the end of this year.
Meanwhile, however, the creation of Libra has stalled as the process of the launch seems to have been jammed up by regulators across several continents; Facebook itself said earlier this year that the network might never launch.
Still, though, the list of countries exploring the issuance of CBDCs is growing. What could the incentives behind issuing a CBDC be if Libra (or a similar initiative) is no longer on the table?
What are CBDCs, exactly?
The truth is that with or without the presence of Libra, there are many possible advantages that CBDC issuance poses for national financial systems.
For the governments that are exploring the issuance of CBDCs, it seems that the ultimate goal is to take advantage of the best things that cryptocurrency has to offer financial systems–specifically, the security and convenience of DLT networks–and combine those features with certain aspects of conventional banking systems.
CBDCs are designed to be fully regulated by their issuing state. Unlike most common cryptocurrencies (i.e., Bitcoin), CBDCs are not created with the purpose of being “decentralized,” although they are most likely based on blockchain or another form of distributed ledger technology (DLT).
Motives, modalities, and possible consequences of central bank digital currency (CBDC) issuance. https://t.co/TohZYZ77ze
— CASANOVA J.François (@CASANOVA_JF) October 26, 2019