Evolution of Central Bank Digital Currencies in 2023: Transitioning from Exploration to Preparation
The momentum surrounding Central Bank Digital Currencies (CBDCs) remains robust in the latter half of 2023. According to our CBDC tracker, 130 countries, constituting 98 percent of the global GDP, are actively exploring CBDCs. A notable sixty-four countries have progressed to the advanced phase of exploration, including launch, pilot, or development. In a noteworthy development, the European Central Bank (ECB) has entered a preparation phase for the digital euro, while PetroChina conducted the first international crude oil trade using the digital yuan (e-CNY).
As the year concludes, let's assess the global progress in CBDCs since our last update in March.
The most significant news revolves around the Eurosystem, where the ECB, one of the world's largest central banks, has taken a substantial step towards CBDC exploration. In October, the ECB announced a "preparation phase" for the digital euro, a form of digital cash offering offline services, enhanced privacy, and instant settlements in central bank money. This phase, starting in November 2023 and lasting at least two years, aims to establish the foundations for the digital euro, focusing on finalizing a rulebook, selecting platform and infrastructure providers, and extensive testing and experimentation.
During the investigative phase, a compensation model was introduced to incentivize banks and payment service providers (PSPs) to distribute the digital euro, ensuring free and widespread acceptance across the euro area. While this phase won't include a decision on issuing a digital euro, it signifies a commitment to preparation and innovation for the future of digital currency in the Eurozone. The ECB's approach underscores the importance of thorough research and collaboration with industry stakeholders, with the preparation phase expected to yield valuable insights influencing the introduction of a digital euro and potentially shaping the broader financial landscape.
The ECB is not alone in making strides in CBDC development; here's an overview of developments over the past eight months across various countries.
Country Updates:
Argentina: The Central Bank of Argentina is working on the legal framework for a CBDC project in pesos, primarily addressing economic issues and inflation.
Australia: Mastercard concluded a successful CBDC blockchain pilot with the Reserve Bank of Australia in October, demonstrating interoperability with various blockchains. However, a full-scale CBDC development is still a few years away.
Brazil: The Central Bank of Brazil is addressing privacy and infrastructure issues in developing the digital real (DREX), with the first-phase launch planned for May 2024.
China: PetroChina completed the first international crude oil trade using the e-CNY, addressing the Shanghai municipal government's requirements for cross-border trade.
India: The Reserve Bank of India is piloting its CBDC in the interbank borrowing market, with the aim of achieving one million daily transactions by the end of 2023.
Japan: The Bank of Japan launched a forum for a digital yen pilot program in partnership with 60 companies, focusing on various aspects of retail settlements with CBDCs.
Nepal: Nepal Rastra Bank announced plans to develop a CBDC despite ongoing bans on cryptocurrency and stablecoin activity.
Philippines: The Philippines is progressing with plans for a wholesale CBDC, partnering with Hyperledger Fabric for its first digital peso pilot, Project Agila.
Russia: Russia is advancing its digital ruble plans, aiming for mass adoption by its citizens by 2027.
South Korea: The Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service are planning a joint pilot test for a CBDC to assess its potential use in both retail and wholesale payments.
Switzerland: The Swiss National Bank is partnering with six commercial banks and the SIX Swiss Exchange for a wholesale CBDC pilot named the Swiss franc wCBDC, scheduled from December 2023 to June 2024.
United States: Congressman Stephen Lynch reintroduced legislation in September to develop a US CBDC, following the establishment of the Congressional Digital Dollar Caucus focused on advancing the development and understanding of a digital dollar.