Europe and the central bank digital currencies challenge – are we still in time? 

Today, there are many countries around the world interested in CBDCs: According to the latest survey conducted by the International Monetary Fund (IMF), 110 countries are working on CBDCs at various levels. The progress made in relation to the emission of a CBDC can vary greatly, as illustrated below.

• Study/research phase the initial phase of analysis, preparatory to the subsequent development: this, for example, is the case for the United States, Australia and Europe itself, with the work being done by the ECB. In the United States, the Federal Reserve recently published a discussion paper examining the pros and cons of issuing a U.S. CBDC. The document summarises the current state of existing national payment systems and the new methods that have emerged in recent years, including stablecoins and other cryptocurrencies. It concludes by examining the potential benefits and risks of a CBDC, and identifies specific policies being taken into consideration. In line with the work already carried out by the EBA, this document represents the first step towards a public discussion aimed at collecting feedback from all parties involved by 20 May 2022, answering 22 questions on the potential benefits, risks and design of a CBDC. In parallel, Australia recently published a report to mark the successful conclusion of the “Atom Project”, which demonstrated the potential of a “Wholesale CBDC" in improving efficiency, risk management, and innovation in financial market transactions. More specifically, the project proposed several areas where more research and experimentation will be needed to allow the Australian government to decide whether to develop and issue its own CBDC. Finally, Meta (Facebook), which had been working for some time on its proprietary, dollar-backed stablecoin (officially renamed DIEM in 2020), found it necessary to halt the initiative due to the many difficulties encountered in the process, including strong opposition from Regulators and Central Banks and because several key partners had dropped out of the project.

• Development phase: the implementation phase, in which the Central Bank develops and deploys the infrastructure that will be used for issuing and managing the digital currency: this, for example, is the case for Canada, Russia and Brazil.

• Testing phase: the phase in which the virtual currency is tested in the field, in view of a subsequent launch. The most important case amongst the major world powers is China, the nation furthest along the path of adaption of its own CBDC. The Chinese testing has already involved more than 35 commercial banks, with the aim of officially launching the Digital Yuan later this year, while also taking advantage of a large event such as the 2022 Winter Olympics to carry out its pilot. In addition, in January, China released the “e-CNY” app, its wallet application available for cities where the Digital Yuan is currently in its trial phase. It enables the e-CNY system to support interoperability with traditional electronic payment systems, and to take full advantage of existing financial infrastructure, thanks to compatibility with Alipay and WeChat.

• CBDC emission: the virtual currency is officially launched within the nation in which the Central Bank operates. To date, there are still very few nations that have already launched their own CBDC. In October 2020, the Central Bank of the Bahamas launched the “Sand Dollar”, thus becoming the first country in the world to officially launch a CBDC, followed by the Eastern Caribbean Central Bank, Nigeria with eNaira and Cambodia with Bakong. Specifically, this last CBDC, developed by the Japanese blockchain company Soramitsu, allows for the use of a free mobile app to make payments and transfer money through any bank on the platform, including without having a traditional current account.