CBDC stands for Central Bank Digital Currency.
The development of CBDCs in many countries have
been in the works for many years now.
Attempts have been made to establish a CBDC from
as early as 2014 when the government of Ecuador,
under then-President Rafael Correa, decided that
they wanted electronic money (dinero electrónico,
or DE) unfortunately the system had failed within 3 years
of its rollout due to a lack in the number of users and
volume in payments.
Starting on December 27th, 2019 the central bank of
the island of Bahamas begun the first phase of their
CBDC or "Sand Dollar" roll out in the district of Exuma
with plans to extend to Abaco. It is important to know
that CBDCs are not cryptocurrencies. They will be
implemented by using a database that is run by central
banks, governments, or approved private sector entities.
In terms of fungibility, CBDCs should be able to be exchanged
for the majority, if not all forms of digital currencies.
Unlike the majority of cryptocurrencies though, CBDCs are
not decentralized and as a result, they will not require
a distributed ledger or a blockchain in order to function.
CBDCs are equivalent to their specific paper currencies.
Which means that they will have the same value as their
specific paper counterparts.
In terms of progress, China has been making great strides
towards establishing their own CBDC or DCEP which stands for
Digital Currency Electronic Payment. From the time that
the PBOC central bank released its whitepaper last summer,
they have been working towards the launch of their BSN
or Blockchain Service Network system which is already
been piloted in Chinese cities and along its “Digital Silk Road”
trade routes. The recent pace of china's digital currency
development has been in direct response to facebooks
Libra project. Facebook had initially planned to back Libra
with a basket of currencies excluding the Chinese yuan and
China took it as a threat to their economy. Since May of 2020
China has initiated a pilot program to test its Central-Bank
Digital Currency or (CBDC) in four cities: Shenzhen, Suzhou,
Chengdu, and Xiong’an. They do this in preparation to launch
the world's first official digital currency.
It should be no surprise that among the first to embark on
this digital revolution was the united states and the united
Kingdom. On March 12th, 2020, the Bank of England published
its discussion paper on Central Bank Digital Currency,
Opportunities, Challenges, and Design. On May 28, the United
States Digital Dollar Project released its white paper, a 30-page
document detailing the potential applications of a CBDC.
Judging by the timing of the release of these CBDC white papers
one may think that the Corona outbreak might have had something
to do with it, and they would be on to something. But it is
also true that these countries have been working on CBDCs
for years now. The Corona outbreak has only served to accelerate
the process of establishing them. As it has been said before,
its not a matter of who will win this digital race but rather who
can establish a CBDC that works, for many countries have tried
before and failed.