Central Banks Digital Currency (CBDC) is a digital currency or virtual asset backed by a central bank. According to the Atlantic Council CBDC Tracker, over 100 countries are currently exploring the CBDC opportunity and between 2020-2022 the central banks of many countries launched CBDC, while others started the pilot or research project. The Bahamas was the first country to launch CBDC which they named Sand Dollar. Nigeria launched e-Naira and Jamaica introduced JAM-DEX. China has been trialing Digital Yuan or e-CNY for a couple of years, Ghana is conducting eCedi pilot and India has started a pilot of both wholesale and retail CBDC Digital Rupee (e-Rupee) in the last quarter of 2022. Sweden has been exploring and developing its CBDC e-krona since 2020 and the European Central Bank is investigating the Digital Euro.
2023 will be crucial for the growth of CBDCs. Many countries conducting the CBDC pilot will analyze the results in the new year and take a decision on the next steps which can include expanding the CBDC pilot phase, moving from pilot phase to commercial live, or terminating the CBDC project. Countries in the investigation phase might plan to launch the CBDC pilot. For example, the Swedish Central Bank recently stated that it is “preparing for a possible e-krona”, but it also pointed out that the decision to issue e-krona has not yet been made. Brazil’s central bank is also planning to introduce digital currency in 2024 after a pilot with the country’s banks and financial institutions in 2023.
Overall, the increase in research, development, and trials of CBDCs in 2023 will bring more clarity on its implementation. The questions related to the design of CBDC, the distribution model, conversion of cash/money from bank accounts or digital wallets into digital currency, responsibility of on-boarding users and the role of intermediaries will become clearer as the CBDC activity grows in the new year. 2023 can also see increased partnerships between central banks for interoperability between CBDCs and its use in foreign exchange operations and settlement. Another interesting possibility to look forward is the use of CBDC for making purchases in the Metaverse.
However, in 2023 central banks will also need to find good answers to the basic question of what problems exactly they seek to solve with a digital currency of their own. Retail CBDCs in particular have so far proven to be difficult for people to understand, as from a practical standpoint there is very little or no difference to other payment apps that have been available for a long time. China’s e-CNY for instance is finding it difficult to find its place in the already crowded Chinese payment app ecosystem.