Another wave of countries have reported looking into Central Bank Digital Currencies (CBDC). Our last look into the matter looked towards Australia's efforts to digitize their national currency, and it appears the fever has spread. In this article we’ll be covering the efforts made to date by the new front runners in the matter: Israel, South Korea and Indonesia. As always, before we dive in we’ll touch on some of the basics.
What Are CBDCs?
As the world moves into a more digital age, it is only a matter of time before cryptocurrencies become fully integrated into the mainstream world. As we edge closer to this reality, the latest “cryptocurrency” to join the ranks are Central Bank Digital Currencies. Many argue that they are not technically cryptocurrencies as they are designed to be centralized and operated by the banks (against the nature of why cryptocurrencies were created in the first place). However, these currencies will still utilize blockchain or DLT technology, and provide a faster and cheaper means of transferring money.
CBDCs are operated by banks under the watchful eye of the government, and offer a digital version of the local currency, on a 1:1 ratio. An internal stablecoin if you will. While these are not designed to cut out the physical fiat versions, these are alternative options with a wide range of advantages (like the bank never closing, etc.).
The Bank of Israel has confirmed that they have created a committee to oversee the digital shekel project. The committee has already released a report, outlining their efforts to accelerate a local CBDC launch including a draft model and questions for public consultation.
The model illustrates a two tier structure in which the bank provides digital shekels to private sector payment providers (banks, credit card companies, fintechs, technology firms, etc.), who in turn act as the interface between the public and the bank. Through the use of DLT (decentralized ledger technology, similar to blockchain) or centralized ledgers.
Through increased research and preparation, the Bank of Israel hopes to see the project reach full fruition in the near future.
South Korea CBDC
In mid-May, South Korea's central bank announced that they were looking for a technology supplier to partner with who will research and then build a platform to launch a digital currency.
Through an open bidding process, Asia’s fourth largest economy is looking for a suitable candidate to carry the company through the process of modernising their financial systems. As cryptocurrencies continue to dominate in the country, the opportunity to speed up international and domestic payments through a digital currency of their own is very appealing.
"The share of cash transactions is decreasing significantly. The steps we are taking now are to prepare for the changes in the payment settlement system, changing rapidly," said a Bank of Korea official.
Due to launch in August 2021 and run until the end of the year, the pilot platform will have simulations of retail outlets and commercial banks. Bank of Korea will then trial the CBDC through mobile phone payments, deposits and fund transferring on the platform.
Following a boom in digital transactions, the Indonesian central bank is also looking into launching their own digital rupiah. Governor Perry Warjiyo announced mid-May that the bank had put testing and launching a digital currency as one of its main policy priorities.
According to Bank Indonesia data, online transactions on digital banking platforms ‘increased 60.3% on an annual basis to more than 570 million times in April, while value rose 46% to reach 3,114.1 trillion rupiah ($217.4 billion).”
Currently, Indonesia bans the use of cryptocurrency transactions (however, users are still able to trade) but will treat the digital rupiah with the same regulation as bank notes and card transactions.
The World Is Going Digital
With several countries implementing programmes to test and launch CBDCs, leading the pack is currently China. The Asian country tested their digital yuan late last year, while the Central Bank of Norway has illustrated intentions to test their CBDC with trials expected to launch in the next two years. Keep an eye on our Oobit blog to stay informed, educated and in the know.