In this digital era we see one country after another rolling out their digital currency plans. Some are in an advanced phase while other are just planning to make the step towards digitalization.
Turkey is joining the club as well, planning to start the pilot program in the second half of 2021. The conceptual phase of R&D project is already completed, according to Central Bank chief Naci Agbal. They are late already as President Recep Erdogan said the trial for the digital currency will be finished till the end of this year. The government also intends to develop a software platform for instant payments based on the new digital lira.
The Turkish government had a bad reaction to Bitcoin a couple of years ago, considering it a pyramid scheme and tried to keep people away from cryptocurrencies. Some government officials suggested regulating cryptocurrencies, while others came up with the idea of implementing their own digital currency, called Turkcoin.
Turkey is struggling with high inflation. The year-end inflation rate is estimated to be around 12.1% for 2020. The target for 2021-2023 is 10.5% but on medium term, the target is 5%. Comparing these rates to the annual inflation rate of 2,1% in my country registered in November, I could say Turkey is not in a good economic state right now. We aren't either but Turkey is far more worse. Naci Agbal plan is to maintain a tight stance in monetary policy in order to reduce inflation.
The rush to implement the digital currency system is apparently due to concerns around cash payments during the Covid-19 pandemic, that's the official version. Reality may say otherwise though, controlling the underground economy may be one of the reasons. However, the Bank for International Settlements (BIS) says they have no record of Turkey in their active database of CBDC projects, so Turkey is not ready to register yet.
This is the map of CBDC projects worldwide. A few countries are leading the way, others are just testing the waters while others are nowhere. Africa and South America are not doing great. FOMO is working in this area as well. Many countries know they may have no choice but joying the crowd but financially they are not ready, don't have the funds to finance the infrastructure a system like this needs.
This is a more interesting summery as you can see the main motivation of the countries in implementing a digital currency.
- China - Monetary sovereignty, internationalization
- Sweden - Declining use of cash, financial stability
- The Bahamas - Payment efficiency, financial inclusion
- Eastern Caribbean Currency Union - Resilient payment systems, financial inclusion
- Marshall Islands - Financial inclusion, seigniorage.
My favorite is Sweden as it's clear CBDC is introduced out of necessity and the country is ready to adopt the new system asap.
The European Central Bank (ECB) has published its paper on the digital euro, however the decision whether to issue digital Euro will be made by mid-2021.
We still have to wait a few years to see how these pilot projects are going to work out. This is new to everyone, it has never been tested, therefore the outcome can differ from country to country. Those like Sweden most likely are going to succeed and use it with great benefits, while others may be surprised not to get the expected results. This measure alone won't fix a broken economy. Those countries where government funds are used to feed certain circles need to think twice and look for a real solutions to fix the economy.
Posted on Leofinance
