The adoption of cryptocurrencies around the world has been such that central banks have had no choice but to explore and develop their own. Digital currencies created by central banks to be legal tender are more commonly referred to as central bank digital currencies (CBDCs).
Unlike cryptocurrencies and Satoshi’s vision, CBDCs are digital tokens of an official currency. As with fiat, countries’ central banks and monetary authorities issue and regulate CBDCs.
CBDC in circulation today
A number of central banks and monetary authorities have developed and issued CBDCs today. According to CBDC Tracker, the Bahamas was first, with the Sand Dollar. Nigeria is the only other country to have been fully launched, along with e-Naira.
More countries are currently in their CBDC pilot phases. These include China, Canada, Eastern Caribbean Economic and Monetary Union, France, Ghana, Saudi Arabia, Singapore, South Africa, United Arab Emirates and Uruguay.
Australia, Hong Kong, Japan, Korea and Sweden are among the 11 countries currently in the proof-of-concept phase.
Denmark, Ecuador, Finland, Haiti and Tunisia are currently the only countries that have canceled their plans to introduce CBDCs. The rest of the world is currently in the research phase.
Although CBDCs are a cheaper option, there are many concerns about cybersecurity and privacy. These concerns have slowed progress toward broader CBDC issuance.
The United Kingdom and the United States
Just last week, news hit the threads of the UK House of Lords committee seeing “no urgent need for a central bank digital currency yet”. The Committee reportedly raised concerns about financial stability and privacy.
In the United States, cryptos, CBDCs, and stablecoins have been a hot topic for some time. Last week, lawmakers pressed Fed Chairman Powell for an update to the Fed’s report on cryptos and digital currencies. Late last year, the chairman of the US Senate Banking, Housing, and Urban Affairs Committee, Senator Brown, criticized cryptos and stablecoins during a stablecoin committee hearing. During the hearing (00:55), there had been a lot of discussion about USD Coin and whether it should be renamed in case of CBDC USD. The FED was to publish its report in the summer of 2021.
Bank of Israel and a digital shekel
The Central Bank of Israel is currently in the research phase of launching an e-shekel based on Ethereum (ETH). The Bank of Israel published a report in May 2021 on the potential issuance of a digital shekel. According to the report, “the Bank of Israel has decided to accelerate its learning, research and preparation leading to the potential issuance of a Bank of Israel digital currency in the future”.
Following updates from the newspaper and the news since, information emerged over the weekend about the Bank of Israel gathering the views of stakeholders as it considers making progress with the electronic shekel. According to the report, the Bank of Israel sought opinions on the risks and limitations of an e-shekel. The report also noted that the e-shekel was still in the development phase, with no launch date given.
Like the UK and the US, the Bank of Israel has also reportedly faced challenges. These include the impact on the shekel and the banking system and the cost. Security and privacy may be other concerns, as the UK and US governments have pointed out.
As crypto adoption continues to increase, central banks will likely be more eager to move towards digital currencies. There may be a more pressing need in countries with high crypto adoption.