CBDCs Start Small Before Economic Heavyweights Step In  

Digital Currency

In the brave new world of the central bank digital currency (CBDC), smaller nations are taking the plunge, it seems, before the world’s largest economies are quite ready to do so. Late last week, the Eastern Caribbean Central Bank (ECCB) debuted DCash — which makes it the second central bank officially entering the CBDC realm, after the Central Bank of the Bahamas late last year launched the Sand Dollar, a digital currency backed by that nation’s central bank.

As detailed by the ECCB, DCash exists as a “securely minted digital version” of the Eastern Caribbean dollar. “It offers a safer, faster, cheaper way to pay for goods and services and send EC funds to other DCash users all using a smart device,” the ECCB said last week.

In further evidence that, at least thus far, the CBDC landscape has been dominated by smaller nations, Jamaica’s central bank has said it will launch a pilot program of its own digital currency. The pilot will come by the end of this year, according to bank officials, with the currency set to have an official launch in 2022.

But it would be fair to say that all eyes are on the major world economies (and superpowers) – the U.S., China and Europe among them – to see what their CBDC initiatives might do to help shape economic power and impact the dollar’s dominance.

Against that backdrop, as reported by CoinDesk, at least some observers are discounting the idea that, since China may be out of the gate before the U.S. in bringing a digital version of its fiat to market, the dollar’s position on the global stage may be threatened. Agustín Carstens, general manager of the Bank for International Settlements (BIS), said that China would likely not see a “first-mover advantage” over the U.S.

“Much of this rhetoric is overblown,” Carstens said, adding that no single CBDC would shake up the current competitive landscape of reserve currencies “owing to its digital nature alone.” But he also noted some of the advantages inherent in digital currencies at large — including the fact that, as he put it, “CBDC payments are never subject to any credit risk,” and that the “immediate finality” of CBDCs could help simplify institutional transactions.

As for China, the country’s central bank gave a nod to how a digital currency might function in day-to-day commerce, with the assurance last week that a digital fiat would not displace payment services such as Alipay and WeChat Pay. Mu Changchun, director of the People’s Bank of China’s digital currency research institute, spoke at a panel discussion organized by the BIS. He said that a digital yuan could in fact serve as a backup to the two payments giants if they experienced financial or technical problems.

The U.S. also has large-scale plans in its sights, should the Federal Reserve make the leap from concept to reality. There have been reports that the Fed will launch prototypes of the digital dollar this summer.

July A Pivotal Month For The US? 

In an interview with Karen Webster, Jim Cunha, SVP of secure payments and FinTech at the Boston Fed, said that – in reference to joint efforts between his bank and MIT to explore CBDC feasibility – current focal points are tied to speed, throughput and resiliency. Issuing and scaling digital fiat would require interoperability between different central banks’ digital fiats and payments rails, he said – and central to the debate is just how “smart” CBDCs should be as they travel across blockchain rails.

“This is actually a point of debate when you’re talking about CBDC,” Cunha explained. “Some people think CBDC should be really smart, and should even keep people from doing so-called dumb things.” Elsewhere, he said that CBDCs can be used to help unbanked and underbanked individuals tap into traditional financial services.

The Fed and MIT are targeting a July delivery of a report detailing their joint findings and unveiling a network model for a (possible) CBDC launch.

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