Earlier this year, the talk of central banks and governments about central bank digital currencies (CBDCs) increased. Just this week, the International Monetary Fund (IMF) is back in the limelight, favoring CBDCs over cryptocurrencies.
This week, the IMF favored CBDCs over cryptocurrencies, although some governments and regulators see no immediate need for CBDCs. Earlier this month, the UK House of Lords said there was no urgent need for a central bank digital currency in the UK. A House of Lords committee reported that CBDCs present challenges to financial stability and privacy protection.
Panorama of central bank digital currencies
Following the House of Lords review, the United States Federal Reserve released its highly anticipated review of CBDCs. While the FED made no decision on whether to prosecute a CBDC, the FED identified key risks that included the security and stability of the financial system, privacy, data protection, and financial crime prevention, and effectiveness. monetary policy implementation, among others. Based on the Fed's review, the US is still a long way from a digital US dollar.
According to CBDC Tracker, only two countries have fully developed and issued CBDC, these are the Bahamas and Nigeria. There are a number, however, in pilot stages, including China.
Together with the Fed and the Bank of England, the ECB is currently in the research phase to provide a digital euro. As cryptocurrency adoption continues to grow, however, governments and central banks may find a greater incentive to catch up with those like China.
The European Commission seeks to advance the discussion on CBDC
On Wednesday, the European Commission announced plans to propose a bill in 2023 to introduce a CBDC. In July last year, the Eurosystem launched the digital euro project.
The timing of the project included a 24-month investigation phase, with the aim of addressing design and distribution issues. Key outcomes of a digital euro included:
- Meeting the needs of Europeans.
- Help prevent illegal activities.
- Avoid unwanted impact on financial stability and monetary policy.
- Complementary to cash and not replace it.
As progress is being made behind the scenes, the bill aims to streamline progress towards a digital euro. At the moment, the ECB has set 2025 as the first issue date.
