Some central banks have abandoned the digital currency race
As countries around the world rush to launch a central bank digital currency (CBDC)some jurisdictions have slowed down or dropped out of racing altogether.
While many observers pushed a narrative of urgency around CBDCs, some countries decided that launching a CBDC was not currently necessary, while others tested CBDCs only to reject them.
Each country had its own reasons, with global central banks providing vastly different insights into why their CBDC-related project didn’t go well or didn’t need to get started in the first place.
Cointelegraph has selected four countries that have stopped or suspended their CBDC or CBDC-like initiatives based on publicly available data.
Denmark is one of the best European countries in terms of digital payments, as its population is much less dependent on cash than other European countries.
The Nordic country was also one of the first countries to explore the possibility of issuing a CBDC, with the Danish central bank expressing interest in issue digital currency in 2016. Danmarks Nationalbank then started working on digitizing the local fiat currency and the possible introduction of a digital Danish krone.
After just a year of research, Denmark’s central bank rejected the idea of launching a CBDC, judging that it would do little to improve the country’s financial infrastructure. The regulator argued that Denmark already had a “secure and efficient” payment infrastructure, which offered instant payment options.
“It is unclear how retail CBDCs will create significant added value compared to existing solutions in Denmark,” Danmarks Nationalbank said. declared in a CBDC-related report in June 2022.
The central bank discussed associated costs and possible risks, also highlighting potential difficulties for the private sector. The bank continues to monitor the global development of CBDCs has not completely ruled out a CBDC in the future.
Japan is the third richest economy after the United States and China, and is also the third largest pension market in the world.
The Japanese central bank — the Bank of Japan (BOJ) — published its first report on the development of CBDCs in October 2020 and beyond began testing its digital currency proof of concept early 2021, planning to complete the first pilot phase by March 2022.
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However, in January, former BOJ official Hiromi Yamaoka not recommended to use digital yen as part of the country’s monetary policy, citing risks to financial stability.
In July 2022, the bank Posted a report in which it claimed that it had no intention of issuing a CBDC, the “strong preference for cash and the high ratio of bank account holdings in Japan”. The regulator also stressed that a CBDC, as a public good, “must complement and coexist” with private payment services in order for Japan to establish safe and efficient payment and settlement systems.
“Nevertheless, the fact that CBDC is seriously considered as a realistic future option in many countries should be taken seriously,” the report notes.
The central bank of Ecuador, Banco Central del Ecuador (BCE), officially announced its own e-money known as dinero electrónico (DE) in 2014. The main drivers of the DE program were increasing financial inclusion and reducing the need for the central bank to hold and distribute large amounts of fiat currency.
Since February 2015, Ecuador succeeded in adopting DE as a functional means of payment, allowing qualified users to transfer money through a mobile application. The app specifically allowed citizens to open an account using a national identity number and then deposit or withdraw money through designated transaction centers.
While Ecuador’s DE is widely referred to as a CBDC, some industry observers have questioned whether it really is a CBDC, as it is based on the US dollar instead of a sovereign national fiat currency. . The Ecuadorian government cited support for its dollar-based monetary system as one of the goals of its DE platform after it began accepting the US dollar as legal tender in September 2000.
According to online reports, Ecuador’s DE exploited from 2014 to 2018, amassing a total of 500,000 users at its peak out of a population of around 17 million people. The project was eventually deactivated in March 2018, reportedly by the ECB citing legislation abolishing the central bank’s e-money system. Adopted in December 2021, the law stipulates that electronic payment systems must be outsourced to private banks.
Years after abandoning its central bank digital currency initiative, Ecuador has apparently remained skeptical of the whole CBDC phenomenon. In August 2022, Andrés Arauz, the former chief executive of Ecuador’s central bank, warned eurozone policymakers that a digital euro could potentially disrupt not only privacy but also democracy.
For those who think the Bahamas and China were the first countries in the world to deploy a CBDC, the Bank of Finland has news.
In 2020, the central bank of Finland Posted a report titled “Lessons Learned from the World’s First CBDC”, providing a description of its Avant smart card system, which it created in the 1990s. The Bank of Finland argued that Avant is not only the project that “can be considered the world’s first CBDC”, but also the “only” one that went into production at the time.
After years of research, the Bank of Finland launched its Avant project in 1993. The project involved chip cards similar to those used in debit and credit cards today. According to various sources, the Avant cards predated attempts to create the current CBDCs.
“A key difference between Avant and CBDC systems designed today is that for modern CBDC systems, cards would likely be an additional feature. In Avant, cards were the main component,” noted Bank of Finland in the report.The bank also suggested that the project essentially represents a “token-based retail CBDC,” based on current CBDC terminology.
Avant became obsolete and was finally discontinued in 2006 as it became more expensive than simple debit cards, according to the Bank of Finland. The Avant card was initially free for consumers, but later fees were added, which naturally affected demand for the card negatively, the bank noted. Meanwhile, debit cards were advancing, adding chip card technology and becoming cheaper for consumers.
Despite higher fees, the Avant card had non-obvious advantages over debit cards. According to the Bank of Finland, Avant allowed consumers to pay anonymously because it provided the option to avoid creating or using a bank account.
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After abandoning its own CBDC-related project years ago, Finland appears to be backing a pan-European digital currency. In August 2022, Governor of the Bank of Finland Olli Rehn promoted the adoption of a digital euro working in tandem with private fintech solutions to make cross-border payments in Europe.
The whole world is now watching CBDCs, and no country is unaware of new financial phenomena – even those that have already shelved their own CBDC plans. While it remains to be seen how the various CBDCs will actually play out, it is also important to learn from past experiences, with many central banks emphasizing the importance of coexistence between CBDCs and the private financial sector.
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