The idea of a central bank digital currency or CBDC is not exactly a new one. It goes back all the way to 1987 when James Tobin, a Nobel prize winner proposed the concept of having digital currencies that are retail bank oriented. His proposition talked about the central bank creating a system that would provide a “medium with the convenience of deposits and the safety of currency.” However, at that time the concept did not go beyond the stage of an idea. It is only in recent years that it was taken seriously by financial institutions and we are now seeing a rapidly growing interest in this style of currency.
The coronavirus has given a huge boost to it as well since the refusal to use physical currency from the fear of spreading the virus. Seeing people trying to reduce their cash consumption has given legislators the push that they needed to pursue CBDCs as the viable future option for everyone. One of the first instances of this acceptance was recorded from the Deputy Governor of Sveriges Riskbank Cecilia Skingsley when in 2016 she said during a speech: “the Riksbank should carefully consider meeting the general public’s need for central bank money by supplying this in some electronic form.”
The success of Bitcoin also played a huge role in moving the cause forward and a lot of firms and governments started working on different CBDC projects around the world. In the private sector, the Facebook-led project Libra (changed to Diem) was the first among many to formally start developing the infrastructure for a CBDC to function. The development kept on growing slowly but surely and during the last few years, we have seen a massive increase in the results that are coming out of it.
Perhaps the biggest push has come from the massive success of Bitcoin and the way it has managed to break all its previous records. The strength of bitcoin has given a huge boost to other cryptocurrencies as well and CBDCs are also following the storm. The current CBDC market is showing a lot of promise with four major projects under rapid development in banks around the world. These include Sveriges Riksbank, the Bank of Korea, the Eastern Caribbean Central Bank, and the People’s Bank of China. In addition to that the Sand Dollar, a project launched in the Bahamas, is already live and running!
The way we have seen development happen on the CBDC front during 2020 has shown a lot of promise. Governments and central banks around the world are certainly agreeing to the idea of having a digital currency and more and more entities are stepping in every week and month. Looking at 2021, you can expect to see a big leap in the development of CBDCs. Will your country be among the places to introduce CBDCs nationwide? You are going to find out soon enough.
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