Central Bank Digital Currencies: Ongoing Experimentation
The debate surrounding Central Bank Digital Currency (CBDC) remains highly active with a significant level of experimentation rolling out in 2024. Following a 12 month consultation process Banco De España announced the award of two projects to establish wholesale CBDC infrastructure, with Adhara selected as the technology solutions provider. The race to harness the potential of digital fiat amidst the complexities of technological, regulatory, and economic challenges, appears poised to accelerate.
From Pilot Projects to Public Playgrounds:
The European Central Bank is gearing up to launch its digital euro pilot, collaborating with the private sector to trial three Distributed Ledger Technology (DLT) settlement solutions. These pilots, starting in February, will assess cross-border payments, micropayments, and offline functionality, with the goal of addressing concerns related to financial inclusion and privacy.
The success story of the Bahamas' "Sand Dollar," recognised as the first fully functional retail CBDC, continues to serve as a model for other economies considering CBDCs as a means for financial inclusion and modernization. Fuelled by Mastercard's Digital Identity Network, the Sand Dollar has achieved widespread adoption, with 40% of Bahamians using it for their daily transactions.
China's digital yuan, designed for interbank settlements and large-value transactions, is currently undergoing extensive internal testing. With its rollout the country is poised to assume a global leadership position in this domain. The People's Bank of China has forged partnerships with global tech giants such as Huawei and Tencent to develop the foundational infrastructure, potentially causing disruption to the existing SWIFT system for cross-border payments.
This potential dominance and data security within a closed ecosystem has raised some concerns, promoting other jurisdictions to increase their exploration of the space. Finding the right balance between transparency and anonymity is a tightrope walk for central banks, requiring collaboration with privacy experts and civil society groups.
