The development of active central bank digital currencies may not be as close as many believe due to various factors, such as concerns about privacy that are impeding progress.
In response to the increasing popularity of cryptocurrencies, governments worldwide have introduced their own versions of digital currency in the form of central bank digital currencies (CBDCs).
China was one of the first countries to initiate research on CBDCs as far back as 2014. By May 2020, 42 countries had initiated CBDC projects, with many others beginning research and development efforts in this area.
According to the Atlantic Council, 19 of the G20 countries are at an advanced stage in the development of CBDCs. Currently, there are 167 countries engaged in research and development of a national digital currency, as reported by CBDCTracker.
Out of these 167 nations, only four countries have successfully launched a final product: Jamaica, Zimbabwe, Nigeria, and the Bahamas. On the other hand, seven nations, including the Philippines, Kenya, Denmark, Singapore, Ecuador, Curacao, and Finland, have terminated their CBDC projects.
One major challenge facing CBDCs is the issue of privacy. Some argue that central banks could potentially monitor consumer spending habits and restrict citizens’ spending for political or ideological reasons. Harry Halpin, CEO of Nym, a privacy infrastructure firm, highlighted valid privacy concerns associated with CBDCs.
A recent report in the United Kingdom revealed that a majority of people are worried about government authorities having control over their funds through CBDCs. This sentiment is shared globally, indicating a growing unease with the powers CBDCs could grant financial authorities.
Despite the surge in CBDC projects in 2020, many experts believe that CBDCs lack a clear purpose in the real world. The regulations surrounding stablecoins are seen as crucial, with tech giants like Facebook’s Libra project prompting governments to explore digital currencies through CBDCs.
Julian Grigo, from digital wallet provider Privacy Wallet Safe, pointed out that the lack of purpose and the complexity of gaining approval from various stakeholders are major hurdles in the implementation of CBDCs, especially within a European context.
Considering the growing adoption of stablecoins and the challenges faced by CBDC launches, experts suggest that governments should focus on regulating the stablecoin market rather than pursuing their own digital currencies. This approach would provide more control over widely used private stablecoins, which are preferred by the population over CBDCs.