Top 5 CBDC Projects

[TL;DR]

Digital Yuan: First CBDC project - In development by China since 2014, it’s now in its final pilot phase with over 260 million people using the digital currency with the e-CNY wallet.

Sand Dollar: The first active CBDC ever, developed by The Bahamas.

e-Krona: Made in Sweden, it has been in research and trial phase since 2017 without an official date to when it might be released.

Digital Yen: Developed in Japan, it will hold similar properties to the Digital Yuan and is currently on Phase 1 out of 3 until it is officially released.

Digital Euro: Made by European Central Bank, has been under research since 2020 but with no prediction as to when it will be launched or openly tested in the territory.


[Full Article]

Central Bank Digital Currencies, also known as CBDCs, are taking the political and crypto investment world by storm over the past couple of years as policymakers from all over the globe decide on whether or not to develop these particular digital assets.

Simply defined as digital currencies which are issued by Central Banks, a CBDC can facilitate transactions and banking through the use of blockchain technology. However, unlike actual cryptocurrencies and as the name suggests, they are completely centralized.

Although the development of such assets is still up for debate in territories like the United States and the European Union, there are several nations that have already begun working on CBDCs to be implemented into their citizen’s daily lives.

In this article, we look into the top 5 CBDC projects currently under development in the world and their particular frameworks.

Digital Yuan (China)

Also known as the DCEP, China’s Digital Yuan is the earliest CBDC project under development. The country began plans for developing a digital currency as early as 2014. During that year, the People’s Bank of China set up a research group to study the efficacy of digital currencies, which resulted in an official branch launched in 2016 called the Digital Currency Institute.

Four years later, In 2020, China officially announced that it was in its final stages of developing the asset. They began their use as a pilot through several cities in the nation - beginning with some districts of Shenzhen. Since then, the pilot project has expanded to several cities nationwide and now accounts for over 260 million users as of January 2022.

But China didn’t plan for citizens to use the Digital Yuan without a central software for it. Along with developing the currency, they also worked on a digital wallet to store it. Named e-CNY, the wallet was also first introduced in Shenzhen and is available to download on Android and iOS.

With the currency, China intends to create a more dynamic economy while also keeping a better check of potentially fraudulent activities, which are harder to track when done with physical cash.

Sand Dollar (The Bahamas)

Surprisingly, the first CBDC project fully implemented and readily available doesn’t come from high-tech nations or international trade giants - it actually came from The Bahamas. Named Sand Dollar, the digital currency was inagurated on October 20th 2020, much earlier than most countries even began researching or pilot-testing their CBDCs.

According to the Central Bank of The Bahamas, the Sand Dollar started its pilot testing phase in early 2019. Since then, the currency easily passed its trial phases and was quickly implemented in the following year.

Unlike China’s Digital Yuan, The Bahamas didn’t attach the Sand Dollar to a particular wallet. Instead, it has particular authorized financial institutions in the country that can hold and offer the currency to citizens.

The currency’s official web page states that some of the main purposes of the Sand Dollar are to achieve offline digital transactions, digital ID solutions (such as two-factor authentication) and as a security system against fraudulent activities.

e-Krona (Sweden)

In early 2017, Sweden’s Central Bank called Riksbank unveiled that it had begun research to develop their own digital currency called e-Krona, as a reference to their existing asset called Krona. The reasoning behind it was simple: since 2010, demand for physical cash payments had been dropping significantly in the country.

In its official documents, Riksbank explained that it would develop the digital asset through a blockchain company called R3, which has a Distributed Ledger Technology (DLT) entitled “Corda.” Sweden’s Central Bank also partnered with software developing company Accenture. It is so far the only known case of a country developing its CBDC with a private company, let alone two.

In its most recent document about e-Krona’s current pilot phase, Riksbank explained that there are still three challenges to overcome before the CBDC can move on to the next phase:

• It’s not verified if the currency is able to handle retail transactions
• e-Krona might not execute transactions without access to the internet
• Blockchain technology is great, but e-Krona also needs a parallel network with a more traditional framework

Digital Yen (Japan)

In April of 2021, Japan announced that it’s beginning its tests for a Yen CBDC.

Creating a branch of the Bank of Japan (BoJ) called simply “Central Bank Digital Currency,” the agency explained that test will proceed for at least a year before the Central Banks decides taking the project further into pilot testing. That’s defined as Phase 1, while Phase 2 is pilot testing and Phase 3 involves gradual nationwide implementation.

According to official documents from BoJ, Japan’s CBDC needs to serve three main purposes:

• Introducing a payment instrument alongside cash
• Supporting private payment services
• Developing payment and settlement systems suitable for the digital society

Contrary to other CBDC projects in this article, the Bank of Japan explained that there will actually be two versions of the digital currency: retail, to serve everyday trade and transactions, and wholesale for large commerce between corporations and high net-worth individuals.
Before opening the project to its citizens, the Japanese government emphasized that it will not move forward with future Phases unless the CBDC has proven its efficiency as a secure, interoperable, instant and universally-accessible asset.

Digital Euro (European Union)

Although it is still in its early stages, the European Central Bank (ECB) is conducting intense research to eventually launch its own digital currency - the Digital Euro.

As often reported by ECB President Christiane Lagarde, the creation of a CBDC is an attractive but cautious one, as Europe will possess a great challenge of creating a digital asset that’s interoperable across not just several but 27 individual nations.

The ECB has never provided deadlines for the research or when a pilot might eventually surface, but a task force on the matter has been active since mid 2020.

In a recent statement by ECB executive board member Fabio Panetta, the policymaker declared that the Union must move fast but not necessarily rush the development as it is a relatively new technology that must be handled with caution.


Author: Gate.io Researcher: Victor Bastos
* This article represents only the views of the researcher and does not constitute any investment suggestions.
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