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Everything You Need to Know about CBDCs – Part 2

In the first part of this article, we reviewed the current discussions about CBDCs — central bank digital currencies. To recap, both crypto leaders and government representatives are showing growing interest in this new monetary format which will be a fusion of today’s fiat money and cryptocurrencies. CBDCs may ultimately appear in many forms and be backed by many nations, but today, they seem to be stimulating the latest monetary revolution.

In this second part of the article, we will look at the development of CBDCs around the world.


If all goes according to plan, both financially and in light of the outbreak of COVID-19, China is poised to be the world’s first country to launch a CBDC. Digital renminbi are expected to be issued later this year, based on a centralised network which, according to reports, will have a two-tier structure:

  • The central bank will issue the digital tokens to commercial banks (as is the case with today’s fiat money in most countries in the world).
  • The commercial banks will supervise the usage of money by their customers..

Unlike physical cash, the Chinese government will keep “an eye on” the utilisation of tokens by end users, though the digital currency will be encrypted to keep its usage and data secure and avoid double-spending.

Following in China’s footsteps: the rest of the world

Officially, the United States has declared that it won’t launch a digital dollar. However, the former chair of the commodity futures exchange commission (CFTC), Christopher Giancarlo, is leading a lobby group to explore the creation of a digital dollar. He spoke about the issue at the recent World Economic Forum Annual Meeting in Davos, saying:

“We believe that the dollar usage in the global economy is underserved by serving as a continual analog instrument in a digital world. We’re going to think through how to create a digital dollar that serves well into this coming digital century.”

Following China, Europe appears to be the next frontier. Sweden has already launched a pilot for CBDC, dubbed e-krona, after a few years of experimentation with the currency. “The objective is to create, in an isolated test environment, a digital krona that is simple and user-friendly. The technical solution will be based on Distributed Ledger Technology (DLT), often referred to as blockchain technology. The main aim of the pilot is for the Riksbank to increase its knowledge of central bank-issued digital krona,” according to an announcement by Riksbank, the central bank of Sweden.

The e-krona pilot is based on the blockchain technology company R3’s Corda technology (known as CorDapps), and like the Chinese plan, will operate through a two-tier mechanism. Users will be able to hold the coins in digital wallets, and make payments, deposits, and withdrawals via a mobile app. Regarding privacy, the Riksbank is emphasising its control, stating that e-krona “will be private and only accessible for participants approved by the Riksbank.” Sweden is one of several countries looking into abandoning physical cash, but local authorities are not setting any timeline for a full move to e-krona.

The head of the European Central Bank (ECB), Christine Lagard also reaffirmed her interest in advancing the launch of a CBDC. In an interview with the French business magazine Challenges, Lagard said:

“We are looking closely into the feasibility and merits of a CBDC, also because it could have major implications for the financial sector and for the transmission of monetary policy.”

In France, François Villeroy de Galhau, governor of the country’s central bank, welcomed the idea of the digital currency:

“We as central banks must and want to take up this call for innovation at a time when private initiatives ⁠— especially payments between financial players ⁠— and technologies are accelerating, and public and political demand are increasing. Other countries have paved the way; it is now up to us to play our part, both ambitiously and methodically.”

The CBDC “Toolkit”

During the January conference in Davos, the World Economic Forum published a “toolkit” for policy makers on CBDC. The toolkit is intended to provide regulators with comprehensive and risk‐aware information. Here are some highlights of the toolkit, which focus on the main issues involved in the launch of CBDC:

  • Availability/access
    Will the currency be launched directly to users or via commercial banks in the two-tier format? Will foreign citizens have access to it? Will there be a collaboration with investment funds or stablecoin providers?
  • Custody and storage
    Where will CBDC be held — on accounts managed by central banks or in digital wallets?
  • Anonymity
    To what extent will information remain private or pseudonymous?
  • Account and transaction limits
    Will there be limits or constraints on transaction size or total account balance?
  • Interest payments
    Will CBDC users or the commercial bank that distributes it pay interest rates (as is the case with today’s fiat money)?
  • Settlement times and finality
    Will settlement be near immediate and available 24/7/365 (“cash‐like”) or will it be periodic or delayed to allow more time for recourse and compliance requirements?
  • Programmability features
    Will CBDC be programmable; if so, under what conditions?
  • Lending activity
    Will central banks or intermediaries conduct lending activity on CBDC?

A bridge or a wall

It seems inevitable that the next few years will bring CBDC to the fore. With more or less enthusiasm, governments seem to realise that the future of money is digital.

The most intriguing question is whether this digital currency will bring more freedom and open markets or whether it will be used to observe citizens and as a form of censorship. Even if governments create a CBDC, they will not replace cryptocurrencies and cannot emulate their decentralised nature. Nevertheless, it remains to be seen whether CBDC will be a bridge between cryptocurrencies and fiat money — or another wall.

Click here to read Part One of this article.

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