Digital Dollars, Digital Yuan, Digital Chaos? The CBDC Arms Race Explained

Central Bank Digital Currencies (CBDCs) have taken center stage in the digital finance arena, as central banks worldwide explore their potential advantages and challenges. The number of CBDC projects has surged significantly in recent years, with 131 countries, representing 98% of the global economy, actively exploring digital currencies. This research delves into the dynamic landscape of CBDCs, examining various scenarios, ongoing experiments, and implementation efforts globally. Central Bank Digital Currencies (CBDCs) have taken center stage in the digital finance arena, as central banks worldwide explore their potential advantages and challenges. The number of CBDC projects has surged significantly in recent years, with 131 countries, representing 98% of the global economy, actively exploring digital currencies. This research delves into the dynamic landscape of CBDCs, examining various scenarios, ongoing experiments, and implementation efforts globally. The study highlights the motivations behind CBDC initiatives and evaluates the practical experiments conducted by central banks, ranging from launched projects to pilot and developmental programs. It also explores cross-border projects and collaborations with the private sector. Through a comparative analysis of different approaches to CBDCs, the article uncovers a nuanced narrative of the economic, social, and political factors influencing the design and deployment of CBDCs. The study highlights the motivations behind CBDC initiatives and evaluates the practical experiments conducted by central banks, ranging from launched projects to pilot and developmental programs. It also explores cross-border projects and collaborations with the private sector. Through a comparative analysis of different approaches to CBDCs, the article uncovers a nuanced narrative of the economic, social, and political factors influencing the design and deployment of CBDCs. Part I: CBDC Initiatives: Current Status Part II: Launched and Pilot CBDCs Part III: CBDC Research and Exploration Part IV: Future Prospects Part I: CBDC Initiatives: Current Status Part I: CBDC Initiatives: Current Status Part II: Launched and Pilot CBDCs Part II: Launched and Pilot CBDCs Part III: CBDC Research and Exploration Part III: CBDC Research and Exploration Part IV: Future Prospects Part IV: Future Prospects PART I: CBDC INITIATIVES: CURRENT STATUS PART I: CBDC INITIATIVES: CURRENT STATUS Central Bank Digital Currencies (CBDCs) have emerged as a key focus for central banks globally, with significant implications for the financial landscape. By 2023, many policymakers had moved from conceptual frameworks to pilot programs. The Bank for International Settlements (BIS) reported that by the end of 2023, 93% of central banks were engaged in CBDC development, with nearly 20% poised to issue a digital currency soon (Kosse, 2023). The 2023 PWC index revealed that 21 new central banks initiated research on retail CBDC projects compared to 2022, with 8 launching pilot programs in countries including India, Singapore, Hong Kong, and Norway (Blumenfeld, 2023). Additionally, 7 new central banks began researching wholesale CBDC projects, with 3 starting pilots in Colombia, Namibia, Tanzania, Brazil, and the Philippines. The Bank for International Settlements (BIS) The 2023 PWC index Research on CBDCs is evolving rapidly. Key areas of focus include the role of central banks in CBDC development (Williamson, 2021; Fernández-Villaverde et al., 2021), impacts on monetary systems, policies, and banking operations (Shen & Hou, 2021), potential implications and benefits (Bhaskar et al., 2022; Elsayed & Sousa, 2022), design and technological innovations (Lee et al., 2021; Son et al., 2023), and security and privacy issues (Pocher & Veneris, 2021). Global bodies such as the BIS and the International Monetary Fund (IMF) play significant roles in this research. The IMF, for instance, has launched a virtual CBDC Handbook to share knowledge and engage with policymakers, emphasizing collaboration with central banks and international organizations like the G20 to assess CBDCs’ effects on financial stability and cross-border payments (Das et al., 2023; Soderberg et al., 2023; Tourpe et al., 2023). International Monetary Fund (IMF) CBDC Handbook collaboration with central banks The number of CBDC projects has increased significantly in recent years, with countries at various stages of development, from public consultations to practical use cases. Currently, 131 countries, representing 98% of the global economy, are exploring digital currencies. The Atlantic Council’s study indicates that nearly half of these countries are in advanced development, pilot, or launch stages, with all G20 countries except Argentina making substantial progress (Atlantic Council, 2023). As of the beginning of 2024, 11 countries have launched CBDCs. The first was the Bahamian Sand Dollar in 2019, followed by six Caribbean nations by June 2021. Nigeria launched the eNaira in October 2021, leading in retail CBDC development (Ree, 2023). By July 2022, four more Caribbean states had adopted CBDCs, with Jamaica being the most recent addition in July 2022. The Atlantic Council’s study 11 countries Bahamian Sand Dollar eNaira Over 100 countries are in the research and exploration phase, with major economies like India and Brazil planning CBDC launches in 2024. More than 20 other countries are preparing for significant pilot steps, including Australia, Thailand, and Russia. Leading the development in 2023 are regions such as the Euro Area, the United Kingdom, Sweden, Singapore, and China, which has pilot-tested CBDCs with 260 million people across 200 scenarios, along with some developing countries. Before embarking on the research and development of CBDCs, countries undertake the crucial task of determining the specific type of CBDC that aligns with their objectives and requirements. Countries face the choice between wholesale and retail CBDCs. Wholesale CBDCs facilitate efficient cross-border payments among financial institutions, while retail CBDCs are accessible to the general public for everyday transactions. Some nations, such as Australia, China, and India, are piloting both wholesale and retail CBDCs to offer a hybrid infrastructure. A BIS survey reveals that there could be up to 24 CBDCs (15 retail and 9 wholesale) in circulation by 2030 (Kosse, 2023). Despite wholesale CBDCs being perceived as politically less contentious and technically more feasible compared to retail CBDCs, no central bank has yet issued a wholesale CBDC. In the realm of geoeconomics, emerging markets and developing economies are leading in CBDC adoption. They show higher participation rates in piloting retail (29%) and wholesale (16%) CBDCs compared to advanced economies, which report 18% and 10%, respectively. While both developing and advanced economies share motivations such as financial stability and efficiency in cross-border payments, developing nations are notably more driven by the goal of enhancing financial inclusion. CBDC implementation transcends national borders. The European Central Bank is set to pilot the digital euro ahead of a possible launch in 2028, while cross-border projects like mBridge (involving the central banks of China, Thailand, Hong Kong, and the United Arab Emirates) highlight the global dimension. Currently, the most advanced wholesale CBDC project worldwide is Inthanon-LionRock, which includes Thailand and Hong Kong (De Best, 2024). The United States remains notably absent from the retail CBDC space, progressing primarily in a wholesale CBDC version with retail development stalled. launch remains notably absent CBDC implementation involves a combination of technical development, regulatory adjustments, pilot programs, and public engagement. Current initiatives aim to address various aspects, including the potential impact on the broader financial ecosystem. The success and outcomes of these endeavors will shape the future of digital currencies both regionally and globally. Part II: LAUNCHED AND PILOT CBDCS LAUNCHED AND PILOT CBDCS 2.1. Launched CBDCs The acceleration in the movement from pilot projects to official adoption underscores the dynamic evolution of CBDCs globally. CBDC implementation endeavors vary from one country to another, reflecting the unique economic, technological, and regulatory contexts of each nation. The landscape of CBDCs has witnessed significant developments, with several countries taking decisive steps in launching their digital currencies. As of 2024, 11 countries have successfully adopted CBDCs, marking a notable transition from experimental phases to practical implementation. These launched CBDCs vary in nature, ranging from the Bahamas’ pioneering Sand Dollar introduced in 2019 to Jamaica’s JAM-DEX launched in 2022. This section explores the experiences and outcomes of countries that have embraced CBDC implementation, shedding light on the diverse approaches, challenges, and impacts these digital currencies have had on their respective financial ecosystems. JAM-DEX 2.1.1. The Bahamas (Sand Dollar) The Bahamas is one of the world’s first countries to launch a fully operational retail CBDC. Since the late 1990s, motivated by enhancing financial inclusion and combatting illicit activities, the Central Bank of the Bahamas recognized the necessity to modernize the country’s payment systems. In 2019, a special session of the National Payments Council (NPC) convened with key stakeholders to reaffirm the approach to the project, with emphasis on KYC (Know Your Customer) standards for onboarding, zero cost carve out for the person-to-person (P2P) payments, and outlines of the regulatory standards on data protection. The Exuma pilot launched in December 2019, extending to Abaco in February 2020. And by October 2020, the Sand Dollar expanded beyond the pilot stage, using NZIA Limited technology, and becoming accessible to all Bahamian citizens. Sand Dollar In 2022, Sand Dollar CBDC has continued to advance its usage. Efforts focused on integrating with the commercial banking system, promoting regulations, consumer protection, and addressing user authentication. SunCash, a financial institution authorized to provide Sand Dollars in the Bahamas, has partnered with PopID Inc. software company to allow holders to use PopID’s PopPay platform to to enable face-pay transactions with Sand Dollars. Since the launch, Sand Dollar’s circulation reached 303,785, with a 7.9% adoption rate and 32,736 wallets in use. addressing user authentication SunCash PopID Inc PopPay In May 2022, the IMF recommended the Bahamas accelerate educational campaigns and a robust regulatory framework (IMF Press Release №22/141). In 2023, the Central Bank’s strategic focus involved merchant-centric initiatives, with 80% of domestic mobile payments denominated in Sand Dollars by January 2023. Over 1,500 merchant relationships have been established, and efforts to enhance civic and cultural event experiences are ongoing. accelerate The Sand Dollar is widely used for everyday transactions in the country, especially in remote areas where traditional banking services are limited (Hosin, 2023). Despite technological advancements and outreach efforts, the Sand Dollar’s circulation remains a small but growing percentage of the overall money supply. As of August 2023, 113,000 Bahamians had opened a sand dollar wallet, and 1,700 businesses had access to merchant services through the Central Bank licensed payment services providers, while the Central Bank continues technical enhancements, outreach, and engagement initiatives to boost Sand Dollar adoption and other e-money use. As of December 2023, personal wallets in use stood at 118,955, an expansion of 20 percent for the year to date. Furthermore, SandDollars in circulation rose by 60.8% to 1.7 million dollars (Central Bank of the Bahamas Press Release: Public Update, February 2024). 2.1.2. Eastern Caribbean (DCash) The Eastern Caribbean Central Bank (ECCB) initiated the launch of a retail project DCash, a digital rendition of the Eastern Caribbean dollar, marking one of the earliest implementations of a regional CBDC across member countries of the Eastern Caribbean Currency Union (ECCU), which includes Antigua and Barbuda, Dominica, Grenada, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Anguilla, and Montserrat. The primary motivations behind this endeavor were rooted in the objectives of the ECCU, with a focal point on achieving financial inclusion, followed by reinforcing anti-money laundering measures, combating terrorism financing, and extending banking services to challenging terrains. In March 2021, the ECCB commenced the DCash CBDC pilot project in 4 of the 8 Eastern Caribbean countries, heralding the region’s transition into the realm of digital currency. The official launch of DCash for public use transpired on March 31, 2021. However, the journey was not without its challenges, as in January 2022, technical issues prompted a temporary shutdown of the entire system. This interruption, though, became an opportunity for the ECCB to conduct security tests and implement upgrades and enhancements on the platform. The resumption of DCash services occurred in March 2022. As of September 2023, the project has transitioned into the pilot phase across all 8 Eastern Caribbean countries, actively facilitating transactions at selected merchants. The availability of the DCash consumer wallet and merchant applications for download from online stores enhances accessibility. Developed by Bitt, a Barbados-based software developer, DCash, despite facing technical challenges, remains at the forefront of digital currency initiatives in the Caribbean. Looking towards the future, in December 2023, the ECCB signaled a strategic move by seeking retail ‘DCash 2.0’ vendors. To achieve this, the ECCB issued a Request for Vendor Information (ECCB Paper, 2023), outlining the integration of various systems (wallet providers, core banking systems, identity managers, business intelligence, and offline payment providers) with the existing DCash system. This step underlines the commitment to continuous improvement and advancement in the capabilities of DCash. strategic move by seeking retail ‘DCash 2.0’ vendors 2.1.3. Jamaica (JAM-DEX) In August 2021, the Bank of Jamaica (BOJ) commenced pilot tests for its retail CBDC — JAM-DEX, in collaboration with Ireland-based technology firm eCurrency Mint. The primary motivation associated with developing the CBDC was to reduce the storage and handling costs of cash usage. Following the trial period, the BOJ, in December 2021, announced the completion of the JAM-DEX trial. In June 2022, amendments to the BOJ Act designated the Bank as the sole authority to issue CBDC, reinforcing its position as the authoritative issuer. The same month, JAM-DEX was on track to go live for domestic use. In July, JAM-DEX was rolled out on the Lynk mobile application. National Commercial Bank Jamaica Limited (NCB) issued JAM-DEX amounting to 250 million dollars to facilitate the incentivization program announced in 2022, where the first 100,000 customers received 2,500 dollars in JAM-DEX for opening wallets. In December 2022, JN Bank Limited became the second deposit-taking institution to be onboarded as a wallet provider for JAM-DEX, receiving a digital currency valued at 1.0 million dollars (BOJ Annual Report, 2022). The success of JAM-DEX was evident in its utilization in the Government’s Employment Generation Programme, where it facilitated transactions between workers and small merchants, emphasizing its role as a secure digital payment option that promotes financial inclusion. By the end of 2022, the BOJ had minted JAM-DEX amounting to 276.0 million dollars, with 46.0 million dollars minted in 2022 alone. This included amounts issued to NCB and JN Bank Limited. Notably, NCB onboarded over 3,900 small merchants and over 180,000 regular customers for JAM-DEX transactions. In August 2023, the BOJ reported JAM-DEX’s significant user base of 250,000, accounting for 8.3% of the population. The CBDC had 257.0 million dollars in circulation. Noteworthy developments included Jamaican taxi drivers expressing eagerness to accept Jam-Dex CBDC, with plans to expand CBDC services on mobile phones to the general public. The sector aimed to accept CBDC-type payments by January 2024, fostering increased day-to-day usage. Looking ahead, the BOJ plans to sustain efforts in promoting JAM-DEX as a means of payment for other Government initiatives. 2.1.4. Nigeria (e-Naira) In October 2021, Nigeria became the first country in Africa and the second globally to launch a fully public retail CBDC called eNaira. The Central Bank of Nigeria (CBN) aimed to transform the predominantly cash economy into a 100% cashless economy with the overarching goals of increasing financial inclusion, facilitating cheaper cross-border remittances, and reducing informal payments. A phased approach was adopted for the rollout, with the initial phase limiting eNaira access to bank account holders. eNaira was also developed in partnership with Bitt and Fabric Technology. By December 2021, over 600,000 eNaira wallets were created, and more than 35,000 transactions occurred, primarily between people and businesses. Transaction limits varied based on identity verification, allowing higher limits for users with verified national identities. As of October 2022, eNaira transactions had risen to just under 18 million dollars, with 919,000 customers onboarded and 700,000 transactions taking place. The CBN had minted 3 billion eNaira, with 2.1 billion issued to financial institutions. Integration with 33 commercial banks contributed to the expanding eNaira infrastructure. The CBDC faced challenges in achieving widespread adoption, as noted by the IMF assessment (Ree, 2023). Only 1.5% of wallets were active weekly, with less than 1% of bank accounts having associated wallets. The paper acknowledged that breaking the initial low adoption equilibrium required strategic planning and a bit of luck, and recommends a few steps for boosting eNaira usage, such as using it for social payments in conjunction with mobile money operators (MMOs) that improve the social cash transfer system and increase adoption. Merchants could also be incentivized to use the eNaira. assessment accounts acknowledged could also be incentivized In response to the low adoption rates, the CBN expanded eNaira access during 2023 to include those without bank accounts or internet access. Revenue collection agencies were onboarded, and active promotion through business collaborations and public relations campaigns took place. The CBN also set cash withdrawal limits to encourage digital payments and made welfare payments using eNaira. By June 2023, 18 months after launch, over 13 million eNaira wallets were recorded across all users, with 30% created for social intervention payments. Transactions increased by 68%, amounting to 22 billion, and 3.429 billion eNairas were in circulation (CBN: Update). In June 2023, the CBN approved eNaira for diaspora remittances, requiring international money transfer operators (IMTO) to open merchant wallets through the CBN and pre-fund them with foreign currency. The CBN would then refund the IMTO merchant wallet with eNaira, offering an optional alternative to the traditional dollar payout (3ISSN No). The CBN’s initiatives, both incentives and regulatory measures, played a crucial role in increasing eNaira adoption. The success of these efforts and the potential for mass adoption will become clearer in the coming years. 2.2. Pilot CBDCs Pilot CBDCs, serving as experimental forerunners, play a pivotal role in assessing the feasibility, functionality, and societal impact of these digital currencies. This section delves into the intricate details of pilot CBDC initiatives, offering insights into the motivations, technological frameworks, challenges, and successes that characterize these pioneering endeavors. Examining diverse case studies, regulatory approaches, and technological partnerships, this section aims to provide a comprehensive understanding of the early stages and experimental nature of pilot CBDCs across the globe. The experiences and lessons drawn from these pilot programs serve as valuable guides for shaping the future landscape of central bank-driven digital currencies. 2.2.1. Australia (eAUD) In November 2020, the Reserve Bank of Australia (RBA) embarked on a collaborative venture with the Digital Finance Cooperative Research Centre (DFCRC), unveiling their ambitions for a CBDC under the project name eAUD. The objectives encompassed engaging public discourse, laying out technical and policy requisites, and initiating a pilot program to scrutinize CBDC use cases and assess potential economic ramifications. Other use cases being considered and tested include offline payments, corporate bond and FX settlement, and more. The RBA, in collaboration with major entities like the Commonwealth Bank of Australia, National Australia Bank, Perpetual, and ConsenSys, commenced a proof-of-concept termed “Project Atom”, specifically aimed at tokenizing CBDC for wholesale market participants, utilizing an Ethereum-based Distributed Ledger Technology (DLT) platform. Concluding in 2021, Project Atom delivered technical and policy recommendations for wholesale CBDC payments. In August 2022, the RBA announced a comprehensive study to identify gaps in the existing payment system and explore the potential role of a CBDC. A collaborative effort with DFCRC led to the formulation of a limited pilot program to experiment with innovative CBDC use cases (Richards, T., & Furche, 2022). The RBA disclosed its plan to test various use cases in November 2022, followed by the initiation of a pilot spanning January to April 2023. By November 2022, the RBA had received 140 use case submissions, leading to an extension of the open period for submissions through March 2023. In March 2023, the Commonwealth Bank of Australia and New Zealand Banking Group (ANZ) joined the RBA’s pilot program, collaborating with 12 other financial institutions and payment companies to explore eAUD use cases (RBA Media Release). In April 2023, they successfully concluded the pilot project, focusing on offline payments and pension funds. The RBA and DFCRC jointly released a report in August 2023, summarizing findings from a 12-month research project and industry consultation. The project involved industry participants submitting 160 use cases, with 16 selected for the pilot. Themes included smarter payments, market support, digital money promotion, and inclusion and resilience enhancement. Tokenized money demonstrated potential value in areas such as programmable payments, asset market settlements, offline payments, and support for new forms of privately issued digital money. Alongside the transactional pilot, the project included an extensive industry consultation process. More than 50 companies and government departments were interviewed as part of this process. pilot program In October 2023, Mastercard successfully concluded a CBDC blockchain pilot with the RBA, emphasizing interoperability with various blockchains. The RBA, while open to the idea of CBDC, suggests that a full-scale implementation is still a few years away. CBDC blockchain pilot The RBA contemplates that serious policy considerations for issuing a CBDC in Australia may take several years. The Government’s Strategic Plan for the Payments System in June 2023 expressed support for ongoing exploration, with the Treasury and RBA planning to release a stock-take paper in mid-2024, outlining a forward-looking plan for CBDC in the broader context of the future of digital money in Australia. 2.2.2. China (e-CNY) China is a leader in CBDC implementation. It has conducted extensive retail and wholesale pilot programs and trials in major cities, allowing citizens to use the digital yuan for various transactions, both online and offline. The digital yuan is now part of everyday life for many Chinese citizens. The People’s Bank of China (PBoC) articulated its motivations, emphasizing the enhancement of central bank payment systems’ efficiency, providing a backup to commercial retail payment systems, and fostering greater financial inclusion. China has positioned itself as a trailblazer in the implementation of CBDC. In 2017, as part of its broader initiative to advance high-tech sectors, China initiated the Digital Currency Electronic Payments (DCEP) project, later evolving into e-CNY. China commenced the pilot phase of its e-CNY program in 2019, becoming a pioneering force in CBDC development. The pilot spanned major cities, allowing citizens to seamlessly integrate digital yuan into their daily transactions, both online and offline. In April 2020, the digital currency entered a pilot phase in 4 cities, expanding to 28 major cities by August. Wallet user numbers surged, with over 20.87 million personal and 3.51 million corporate digital yuan wallets reported by June 2021. As of early 2022, the wallet count exceeded 260 million, reflecting China’s continuous efforts to integrate existing payment channels with e-CNY. AliPay started offering e-CNY in express payments in 2023, marking further integration. At the beginning of 2023, China included e-CNY in their currency circulation calculations. The e-CNY represented 0.13 percent of cash and reserves held by the central bank. China has proclaimed a “managed privacy” regime where information belonging to businesses and individual users will be protected from each other, but open to the government — especially the security authorities. The 3 data laws (the Cybersecurity Law, Personal Information Protection Law, and Data Security Law) have prescribed tight control of the collection, transfer, and use of data by companies and private organizations, especially involving the transfer of data to foreign entities. China included e-CNY in their currency circulation calculations proclaimed In 2021–2022, the PBoC laid the foundation for cross-border transactions through the Multiple Central Bank Digital Currency (mCBDC) Bridge project. Foreign travelers to China gained access to e-CNY without requiring domestic bank accounts, emphasizing cross-border circulation. In 2023, China’s digital yuan found applications in cross-border trade, with notable transactions involving crude oil purchases settled in e-CNY. Foreign banks such as Hong Kong-based HSBC, Hang Seng Bank, and Taiwanese bank Fubon Bank joined China’s CBDC pilot trials and integrated e-CNY, enabling clients to transfer and withdraw digital yuan. In July, Chinese President Xi Jinping endorsed the significance of CBDCs in cross-border trade, triggering increased involvement of foreign banks in China’s CBDC trials. Singapore allowed Chinese tourists to spend digital yuan during their visits. crude oil purchases settled in e-CNY joined China’s CBDC pilot trials In December 2023, global partnerships and expansion continued. China signed a 400 million dollar memorandum on CBDC cooperation with the United Arab Emirates, highlighting global partnerships. The official digital yuan app was updated, allowing users to create wallets using phone numbers, and emphasizing user-friendly features. Also in December, the first 14 million dollars cross-border e-CNY gold purchase was completed in Shanghai. 400 million dollar memorandum 14 million dollars cross-border e-CNY gold purchase was completed in Shanghai Throughout 2023, China continued exploring practical e-CNY applications, ranging from financial product purchases to cross-border usage (PBoC Financial Statistics Report, 2023). Some of the key use case scenarios include: the purchase of financial products using e-CNY; raising funds in e-CNY, in relation to a corporate bond issuance; salaries payments at a number of public sector entities; pilot on cross-border e-CNY usage, where visitors from Mainland China are able to use e-CNY at retail outlets in Hong Kong SAR; and launch of special hardware wallets for major international sporting events. Collaborations across industries and jurisdictions aimed to promote widespread e-CNY adoption. The adoption of Near Field Communication (NFC) technology facilitated transactions using hardware e-CNY wallets, even without a network connection. Smart contract applications were extensively explored, introducing features like fund custodianship. As China maintains its commitment to e-CNY, the narrative unfolds with ongoing pilots, collaborative ventures, and technological advancements, solidifying its position as a pioneer in the realm of CBDCs. However, it’s important to note that the outcomes of the e-CNY’s widespread adoption are still unfolding, and its success will depend on various factors, including user acceptance, regulatory developments, and international cooperation. Additionally, privacy concerns and the balance between state control and individual freedom are ongoing topics of debate and scrutiny. 2.2.3. Hong Kong (e-HKD) In July 2021, the Hong Kong Monetary Authority (HKMA) began Project e-HKD, which is a feasibility study on retail CBDC in Hong Kong. The proposed two-tier model, released in October 2021, aims to establish wholesale and retail CBDC systems. The project is driven by improving the access and use of central bank digital money, providing competition to commercial crypto, and supporting innovation. To potentially implement e-HKD, a three-phase approach has been outlined. The first phase (Rail 1) aims to establish the required technology and legal foundation for e-HKD. This involves developing a wholesale CBDC layer that interfaces with the two-tier e-HKD system. Legislative amendments will be explored to enable the issuance of a digital fiat currency with legal tender status. Concurrently, the second phase (Rail 2) explores use cases and addresses implementation issues through collaborative pilots. The third phase (Rail 3) focuses on launching e-HKD, integrating findings from Rail 1 and Rail 2 to determine the timeline, contingent on advancements and market developments. In April 2022, the HKMA invited industry input through a discussion paper on potential retail e-HKD, followed by an announcement in September 2022 about pilot projects starting in Q4 of 2022. Pilot testing for retail CBDC began in March 2023 in collaboration with 16 banks and payment companies. Detailing the findings of the Phase 1 trial, the HKMA report highlighted programmability, tokenization, and atomic settlement as three key areas where Hong Kong’s CBDC could benefit consumers and businesses. the Phase 1 trial highlighted Moving to Phase 2 in October 2023, the HKMA published a Report (HKMA Report, 2023) to discuss the key findings, learnings, and the HKMA’s assessment of 14 pilots conducted by the 16 participating firms under Phase 1 of the pilot. The e-HKD pilot explored areas such as full-fledged payments, programmable payments, offline payments, tokenized deposits, settlement of Web3 transactions, and settlement of tokenized assets. The results under Phase 1 showed that an e-HKD could add unique value to the current payment ecosystem in Hong Kong SAR in three main areas: programmability, tokenization, and atomic settlement. However, the HKMA recognizes that these pilots have been conducted on a small scale under a controlled environment. The HKMA plans to delve deeper into promising use cases from Phase 1 and explore new applications. Phase 2 The HKMA has also been active in wholesale CBDC projects. It has been involved in cross-border projects since 2017, as a part of the Project Inthanon-LionRock with Thailand, which led to the mBridge project. In October 2022, a successful six-week pilot was reported for the wholesale CBDC project — mBridge, facilitating over 160 transactions across four jurisdictions. This project represented one of the first multi-CBDC initiatives to successfully settle real-value cross-border transactions for corporate entities. Moreover, as of April 2021, the HKMA and PBoC have begun testing for cross-border use of the e-CNY. In September 2023, the HKMA, the Bank for International Settlements Innovation Hub (BISIH), and the Bank of Israel (BOI) jointly published a report on Project Sela. The project was the first fintech collaboration between the two regulators and explored the technical viability of a retail CBDC with an architecture that can support non-bank payment intermediaries to directly connect to the central bank’s CBDC ledger. Project Sela As of the beginning of 2024, the HKMA has not made a final decision on introducing e-HKD. Insights from Phase 1 will guide its perspective, and the next phase aims to explore new use cases and establish a CBDC Expert Group to support HK Special Administrative Region’s future exploration of key policy and technical issues surrounding CBDC, such as privacy protection, cybersecurity, and interoperability. 2.2.4. Japan (Digital yen) The Bank of Japan (BoJ) has actively been researching CBDCs, conducting experiments with private sector participation, and closely monitoring developments in other countries. Motivations behind Japan’s exploration of CBDCs are unique due to the prevalent use of cash in retail payments, with an emphasis on offline payment functionality. The 2011 earthquake and tsunami caused widespread disruption to payments infrastructure. Therefore, there is a greater emphasis on offline payment functionality in Japan than elsewhere. In October 2020, the Bank of Japan released a paper on its approach to CBDCs and began CBDC trials in November 2021. As of January 2024, key developments include the completion of two phases of proof-of-concept work for the retail digital yen, with the second phase running for a year, from April 2022 to March 2023, and considered functions to complement the basic ledger functions. According to the BOJ report, the second phase tested technology to implement upper limits on CBDC holdings (BOJ Report, 2023). The results of the proof-of-concept work have led to the initiation of a pilot program in April 2023. The pilot seeks more public and business feedback. The BoJ has partnered with national and regional banks for further testing of CBDC applications, particularly focusing on offline functionality. report pilot program in April The BoJ has established a CBDC forum, collaborating with 60 companies for the pilot program on a digital yen, focusing on various aspects of retail settlements with CBDCs. 60 companies The BoJ has actively participated in global discussions and experiments related to wholesale project discussions and experiments, including Project Stella with the European Central Bank since 2016. The BoJ has also joined Project Guardian, an initiative by the Monetary Authority of Singapore (MAS), in an observer capacity to enhance FinTech linkages. The BoJ’s CBDC efforts involve both retail and wholesale CBDCs, but as of now, no decision has been made to launch a CBDC. The BoJ emphasizes thorough preparation to respond appropriately to changes in circumstances to ensure the stability and efficiency of payment and settlement systems. The next steps for the BoJ include continued engagement in both retail and wholesale CBDC experiments, with a final decision on the issuance of a CBDC expected by 2026. final decision 2.2.5. Kazakhstan (Digital tenge) The National Bank of the Republic of Kazakhstan (NBK) conducted its first retail CBDC pilot program in 2021. The NBK announced additional pilot testing in October 2022 and revealed intentions to test the Digital Tenge on Binance’s blockchain network. Additional pilot testing of the Digital tenge began in November 2023 and is set to run through 2025. The digital currency was integrated into plastic cards through collaborations with Visa, Mastercard, and local banks, promising significant development in 2024. began During the pilot run, the Digital Tenge demonstrated versatility, being used for various purposes. Plastic cards, issued by local banks in collaboration with Visa and Mastercard, facilitated in-person and online purchases, cash withdrawals from ATMs, and conversions between digital and “non-cash” Tenge. The CBDC-backed stablecoins were issued on platforms like Binance and KASE, and experiments included cross-border payments via SWIFT and the collection of value-added tax using smart contracts. The report claimed this level of interoperability was a first for a CBDC (NBK Report, 2023). via SWIFT claimed In December 2023, the NBK and the National Payment Corporation of Kazakhstan (NPCK), a body established in September to administer the national CBDC, outlined their goals for 2024, focusing on increasing the number of intermediary banks, developing decentralized finance applications, enabling offline transactions at scale for enhanced financial inclusion, and participating in cross-border payment projects. The agencies also aimed to address regulatory and legislative goals, enhance Digital Tenge security, and improve processing speed. established in September to administer 2.2.6. Russia (Digital ruble) The digital ruble project was initially announced in October 2020, with plans for a prototype release in 2021. The proposed digital ruble is designed as a programmable currency, offering the Bank of Russia control over its spending and usage. In June 2021, the Bank partnered with 12 major banks, and by February 2022, a prototype platform was created, showcasing successful digital ruble transfers through mobile banking applications. Russia has been working on a digital ruble project since 2020 but has accelerated the program since it started a war in Ukraine. Motivations for the digital ruble include reducing dependence on the US dollar and potentially sidestepping US sanctions. The Bank of Russia views digital currency as a means to combat fraudulent transactions and enable government control over payments for social projects. In July 2023, the Russian President signed the digital ruble bill into law, setting the stage for a pilot launch with 13 banks and a restricted group of clients. According to the newly signed law, Russia’s central bank will be the principal operator of the digital ruble infrastructure and will hold responsibility for all the stored assets. The digital ruble is designed to serve as a payment and money transfer method and does not provide for investment purposes. This pilot started in August 2023, and involved 600 consumers in 11 cities testing the CBDC in 30 retail outlets, with the participant list expected to grow. The pilot tests involved the participation of 13 banks and a restricted group of their clients. The first phase of the pilot also included payments by QR code. digital ruble principal operator of the digital ruble infrastructure The Bank of Russia is pushing forward with digital ruble plans, aiming for mass adoption by citizens by 2027. The CBDC pilot will expand to include businesses and advanced payment features. In 2024, an additional 16 banks are set to join the pilot, and the Bank plans to introduce a fee system for digital ruble usage, applicable to businesses from January 2025. Businesses will have to pay a small fraction of the % (with some upper limits) from January 1, 2025, depending on what the payment is for. Before 2025 all transactions will be free. Full live issuance for consumers and businesses is expected in 2025, with plans for offline digital ruble capabilities also in progress. 2.2.7. Singapore (Project Ubin+, Project Orchid) The Monetary Authority of Singapore (MAS) has been actively involved in exploring the potential of CBDCs through various projects. Project Ubin+ (wholesale CBDC): Cross-border projects have seen collaboration between the Bank of Canada (BoC), Bank of England, and MAS. A joint report in November 2018 assessed alternative models to enhance cross-border payments and settlements. MAS and BoC linked their experimental domestic payment networks through Project Jasper and Project Ubin, conducting a successful experiment on cross-border and cross-currency payments using CBDCs in May 2019. Singapore is also participating in cross-border testing through Project Dunbar, alongside South Africa, Australia, and the BIS. The motivation behind these initiatives is to enhance the speed, cost, and transparency of cross-border payments. Project Ubin+ (wholesale CBDC): One of the key initiatives is Project Ubin, a multi-phase wholesale CBDC project launched in 2016 and aimed at harnessing blockchain and DLT for CBDCs. Project Ubin+ builds on the foundation of Project Ubin (2016–2020) together with the learnings from MAS’ participation in Project Dunbar and the multi-currency corridor network collaboration with Banque de France (BdF). Project Ubin+ Project Ubin Project Dunbar multi-currency corridor network Ubin+ focuses on studying business models, governance structures, and technical standards for cross-border FX settlement using CBDCs. It aims to establish policy guidelines for digital currency infrastructure connectivity across borders. Ubin+ is making progress, with some trials completed and others underway. The initiative aims to lay the foundation for the development of financial infrastructure capable of meeting the evolving needs of stakeholders in the fast-changing ecosystem. Ubin+ currently consists of 3 sub-projects, Project Cedar Phase II x Ubin+, Project Mariana, and SWIFT CBDC Sandbox. Project Cedar Phase II x Ubin+ involves collaboration with the Federal Reserve Bank of New York’s Innovation Center, aiming to improve cross-border transactions using wholesale CBDC for settlement. The project successfully concluded in May 2023 and achieved success in interoperability, atomic settlement, and near-real-time settlement. successfully concluded Project Mariana, in partnership with BdF, Swiss National Bank, and the BIS, explores the use of Automated Market Maker (AMM) for foreign exchange settlement. The project successfully concluded in September 2023. MAS is also part of SWIFT’s CBDC Sandbox, involving more than 18 central banks and commercial banks to explore digital currency-based payment system interoperability. Ongoing project with SWIFT developing a beta version of the interlinking solution. Ubin+ is progressing, and the MAS envisions that efforts into wholesale CBDCs will serve as the foundation to develop financial infrastructure meeting the needs of stakeholders in the rapidly changing ecosystem. In November 2023, MAS unveiled its plan to launch a live wholesale CBDC used for settlements by local banks. live wholesale CBDC Project Orchid (retail CBDC): In the realm of retail CBDCs, MAS is maintaining an open mindset and delving into user-driven applications. In 2022, MAS published the Project Orchid report, outlining the CBDC development path for 2023 and 2024 (MAS, 2023). This included the study of use cases and the identification of the appropriate ledger technology. Project Orchid (retail CBDC) Project Orchid is a multi-year, multi-phase project, currently in Phase I, which looks at the many design and technological aspects of a retail CBDC system for Singapore. This phase introduces the concept of Purpose Bound Money (PBM), allowing money to be directed for specific use until conditions are met. The phase includes four real-world trials a government voucher system trial, a commercial voucher trial, and a proof-of-concept for government payouts via facial recognition at ATMs, and managed learning accounts trial aimed to enhance learning account processes using smart contracts. Two upcoming campaigns include Programmable Rewards and Online Commerce. The MAS has also released a technical framework on PBM, building on Project Orchid’s foundations, explaining how digital money supports commercial and government goals. The framework is open-sourced with industry stakeholders’ participation. In the next stages, Project Orchid plans to engage more stakeholders, exploring QR code integration, digital currency fungibility, transaction privacy, offline payments, and experimenting with individual-dictated remittance conditions. 2.2.8. South Korea (Digital Won) The Bank of Korea (BoK) initiated a pilot program for a retail CBDC in April 2020, successfully completing the first phase in December 2021 and the second phase in June 2022. This program aimed to investigate the legal and technical aspects of a CBDC. The conducted proof-of-concept experiments from August 2021 to June 2022, demonstrated feasibility on a DLT-based platform. Extended experiments with major commercial banks are ongoing, exploring additional use cases and gathering technical information in new test environments. In November 2022, the BoK completed the second phase of its CBDC simulation, addressing performance concerns with Ethereum-based blockchain technology. Experimental data showed limitations in processing transactions in real-time during peak hours, which led to the consideration of a standard centralized ledger database for improved performance. Further experiments with four banks and 15 institutions, including the Korea Institute of Financial Telecommunications and Clearing, were planned even after the research project’s completion. In October 2023, a joint pilot test for CBDC in both retail and wholesale payments was planned by the BoK, the Financial Services Commission, and the Financial Supervisory Service (BoK Report, 2023). pilot test From September to October 2024, the BoK plans to invite 100,000 Korean citizens to participate in the CBDC pilot, limiting them to payment transactions only. The goal is to evaluate the feasibility and effectiveness of issuing and distributing the currency. invite limiting them to payment transactions only The BoK will collaborate with the Korea Exchange to integrate the new digital currency into a simulation system for carbon emissions trading. Regions like Jeju, Busan, and Incheon are identified as candidates for a private target CBDC test bed, aiming to explore CBDC issuance and distribution, including testing payments and distribution at a public level. 2.2.9. Sweden (e-krona) Sweden has been actively exploring the development of an e-Krona, its CBDC. By providing an e-krona, the Riksbank could give actors other than banks direct access to an alternative payment infrastructure where they can offer payment services to their customers. This can make it easier for smaller and new actors to develop new innovative solutions and products. The exploration began in 2017, with the Riksbank, Sweden’s central bank, initiating the development of a CBDC platform in collaboration with Accenture, an Ireland-based professional services company. The first phase of the pilot, conducted in 2021, focused on testing the feasibility of e-Krona transactions. Subsequent phases involved commercial banks, including Svenska Handelsbanken, evaluating the use of e-Krona for both large commercial and small retail payments. In April 2022, the Riksbank reported successful testing of offline functionality and integration with banks and other payment providers in the second phase of the project. Phase three, concluded in April 2023, concentrated on governance and programmability aspects. The focus included cooperation with other payment sector actors, conditional payment design, and the potential simplification of cross-border payments using digital central bank money. The third phase report reviews how the e-krona could function if the SCB decides to issue the CBDC and discusses the needed of different levels of governance, depending on cooperation with the wider payment system. The e-Krona project has emphasized collaboration. Sweden, alongside the Central Bank of Norway, Israel, and the BIS, participated in a cross-border payments CBDC test known as Project Icebreaker, aimed at enabling cross-border retail CBDC payments. The project was followed by a final report in 2023 (Riksbank Report, 2023). The Riksbank’s ongoing initiative involves investigating the possibility of issuing a digital supplement to cash, providing actors other than banks with direct access to an alternative payment infrastructure. In March 2023, the report by government-appointed experts concluded that Sweden does not yet need a CBDC. After more than 2 years of work, the Investigation presented over 900 pages of analysis to the government. The inquiry concluded the case for a Swedish CBDC or e-krona is not yet strong enough. It recommended the Riksbank continue to study CBDC and return to Sweden’s parliament in 2024 with new proposals if warranted. not yet need a CBDC. The Riksbank’s next steps involve in-depth dialogues with actors in the payment sector before making a formal decision on issuing the e-Krona. Future work will shift from technical tests to investigating the conceptual design of the e-Krona. The Riksbank is also closely monitoring international developments in CBDCs. 2.2.10. Ukraine (e-hryvnia) The National Bank of Ukraine (NBU) has been actively exploring the development of a national digital currency, the e-hryvnia, since 2016. In 2018, interest heightened when the NBU announced plans to launch a digital currency based on blockchain, leading to a successful two-month pilot of the e-hryvnia from December 2018 to February 2019. The Ministry of Digital Transformation’s bill “On Virtual Assets” in June 2020 officially legalized the activity and regulation of virtual assets. In January 2021, the Ukrainian central bank entered into a partnership with Stellar Development Foundation to promote CBDC development, and in August 2021, President Volodymyr Zelensky expressed support for a pilot program to pay ministry staff salaries with digital currency. Bitt Inc. and Ukrainian commercial bank Tascombank collaborated to utilize Stellar’s technology for building and testing the e-hryvnia. Despite geopolitical challenges, Stellar confirmed the ongoing development of the CBDC. The NBU accelerated retail CBDC development efforts with motivations including enhancing the Ukrainian payment infrastructure, digitizing the economy, promoting non-cash payments, improving settlement transparency, and instilling confidence in the domestic currency. In October 2022, the trademark was registered with the NBU. In November 2022, the NBU presented the draft e-hryvnia concept to banks and financial institutions, outlining its design options, architecture, features, and advantages for payment service providers. The main goals of the CBDC include advancing Ukraine’s payment infrastructure, promoting cashless settlements, reducing transaction costs, improving settlement transparency, and bolstering confidence in the national currency. concept The NBU is considering various options for using the e-hryvnia, including retail non-cash payments, circulation of virtual assets, and facilitating cross-border payments. The NBU’s strategy involves clear regulation of the e-hryvnia to ensure monetary sovereignty, with plans for a pilot project on issuance and testing, leading to a decision on large-scale issuance. Part III: CBDC RESEARCH AND EXPLORATION 3.1. CBDCs at the Research and Development Stages The exploration of CBDCs has marked a transformative phase in the financial landscape of various nations. In the realm of CBDCs, the research and development stages emerge as a pivotal phase, influencing the course of these transformative financial instruments. This section delves into the intricate process of investigating, conceptualizing, and honing CBDCs during their formative period. As central banks globally embrace innovation, engage in collaborative efforts, and explore cutting-edge technologies, research, and development become the focal point for sculpting the future of digital currencies. Digital currency development is rapidly evolving, especially for smaller nations, while larger players like the US and the Eurozone face higher stakes. The significant impact of these players on global financial markets requires cautious steps. Growing privacy concerns urge governments to assess security protocols. Making judicious decisions about CBDC choices is crucial, ensuring both privacy protection and the realization of outlined government benefits. significant impact 3.1.1. Europe Retail Digital Euro: In Europe, the European Central Bank (ECB) is strategically delving into the potential of a retail digital euro, launching an expansive project that encompasses public consultations and meticulous technical considerations. The ECB dedicated two years to its “investigative phase”, exploring CBDC design and distribution models. The subsequent “preparation phase” commenced in November 2023 and is expected to last for at least two years, concentrating on finalizing the digital euro rulebook and identifying potential developers for the required platform and infrastructure. Retail Digital Euro: The ECB’s Governing Council has decided to progress to the preparation phase, a crucial step supported by the European Commission’s Single Currency Package. To support the initiative, the European Commission previously announced the Single Currency Package in June 2023, proposing a European Regulation for establishing the digital euro. This legislative proposal lays down the groundwork for the digital euro, outlining key features such as its legal tender status, limitations as a store of value for financial stability, involvement of supervised intermediaries, and measures ensuring privacy, data protection, and Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance. The proposal places emphasis on financial inclusivity, real-time settlement for payment transactions, and value-added services, while explicitly excluding the digital euro as programmable money. the preparation phase European Commission’s Single Currency Package. Single Currency Package The EU prioritized rule-making to regulate private market transactions, introducing regulation of markets in crypto assets (MiCA) to cover various crypto assets and service providers. Aimed at investor protection and financial stability, these regulations borrow from securities rules. The broader regulatory framework includes the Digital Markets Act, the Digital Services Act, and the General Data Protection Regulation. Additional laws are anticipated as the European system prepares for the digital euro. rule-making regulation of markets in crypto assets (MiCA) Digital Markets Act, the Digital Services Act General Data Protection Regulation The ECB’s pivotal move towards CBDC exploration, especially the digital euro’s preparation phase, underscores a significant stride in commitment to innovation and comprehensive research, with a distinct emphasis on collaboration with industry stakeholders. The findings are expected to largely determine the future digital currency landscape in the Eurozone. Wholesale Digital Euro: Concurrently, the ECB has inaugurated the New Technologies for Wholesale Settlement Contact Group (NTW-CG) to spearhead the development of a wholesale CBDC. Commencing in June 2023, NTW-CG aims to establish a dialogue between the Eurosystem and financial market stakeholders on innovative technologies for wholesale settlement. The dialogue aims to harness feedback from members, enhance the ongoing initiatives of Eurosystem central banks, and explore the different solutions and synergies between TARGET Services and DLT platforms. The group introduces interoperability solutions such as Trigger, TIPS Hash-Link, and Full-DLT Interoperability. Wholesale Digital Euro: New Technologies for Wholesale Settlement Contact Group In 2024, the ECB plans to enhance efforts, focusing on specifications for interoperability solutions. Key priorities include addressing trial scopes, legal aspects, and specific solution details. The NTW-CG meetings will transition into concrete exploratory work, shaping the landscape of wholesale CBDC development and paving the way for practical implementation and industry adoption. 3.1.2. United States The US Federal Reserve (Fed) has been actively engaged in researching CBDCs to cater to both wholesale and retail financial requirements. Given the global significance of the US dollar, the Fed is at the forefront of CBDC research, policy development, and technological innovation. Despite challenges in moving past the research phase due to the current political landscape, there is a clear emphasis on prioritizing privacy in CBDC initiatives. Ongoing research and prototyping by entities such as the New York Innovation Center (NYIC), the Boston Fed’s collaboration with the Massachusetts Institute of Technology (MIT), and others highlight the proactive approach the USA is adopting in this field. Internationally, the Federal Reserve collaborates with other central banks, reflecting the US’s commitment to a globally harmonized approach to CBDCs. Project Cedar: The key research developments in the U.S. include projects such as Project Cedar, conducted by the NYIC. Project Cedar explored the use of DLT to test the concept of a regulated liability network (RLN) for CBDC exchange and settlement. The Phase 1 report indicated that CBDCs can enable faster and safer cross-border payments. Future phases will explore considerations for ledger platform design, interoperability, and security. Project Cedar: Project Cedar Project Hamilton: Another project, Project Hamilton, conducted in collaboration with MIT & Boston Fed, focused on designing a core transaction processor for a wholesale CBDC, providing insights into policy and technology choices. The prototype was developed to be “technology-agnostic”, i.e. not assuming a blockchain infrastructure. The project results have provided a strong foundation for understanding the interplay between policy and technology choices when designing a CBDC. The work has also shed light on the limitations of different CBDC design options. Project Hamilton: The Digital Dollar Project: The exploration of a digital dollar has seen various proposals and bills, as well as pilot programs initiated by some states and cities. The Digital Dollar Project, a non-profit forum, conducted a pilot study highlighting the potential benefits of CBDCs for retail cross-border remittances, emphasizing 24/7 settlement and increased transparency. The study found that a digital dollar had the potential to significantly reduce credit risk, reconciliation, and related dispute management costs. Additionally, using DLT increased transparency between financial institutions, resulting in greater trust. The Digital Dollar Project: The next steps in the U.S. involve a steady approach that integrates both technological and policy solutions. The Fed advocates for responsible innovation, respecting private sector initiatives while ensuring the stability of the US banking system. Regulatory frameworks are prioritized to safeguard consumers and maintain the integrity of financial transactions, both domestically and cross-border. The creation of an interagency working group further demonstrates the commitment to exploring CBDC development. However, the United States has been deeply cautious compared to some developing countries, particularly focusing on stablecoins rather than CBDCs. Some Republican House members have even introduced several bills to prohibit the Fed from issuing a digital dollar. Recent policy shifts, legislative initiatives, and the Fed’s promotion of stablecoin issuance by banks indicate a nuanced approach. Concerns about privacy, monitoring of private financial transactions, and political use of acquired information have influenced the cautious stance. Legislative inaction has paved the way for regulatory initiatives, with an evolving policy trajectory favoring private stablecoin issuance over official CBDC issuance. The potential risks to the dominant role of the US dollar (USD), including CBDC fragmentation and reduced demand, emphasize the need for proactive strategies to maintain global trust and influence in the evolving financial landscape. deeply cautious several bills to prohibit the Fed from issuing a digital dollar stablecoin issuance CBDC fragmentation poses a risk to the USD’s global prominence in three ways. Firstly, interoperable CBDCs may decrease reliance on the USD in cross-border payments, challenging its 85% share in daily global forex trading. Secondly, reduced USD demand can lead to lower central bank USD holdings, impacting its reserve currency status. As importers shift to local CBDCs, central banks may increase holdings in those currencies, further diminishing USD reliance. The USD’s enduring dominance depends on global trust, but recent trends show a decline in trust over the past two decades. The rise of cryptocurrencies and a distributed financial system offer alternatives, and a gradual shift to multiple currencies could erode the USD’s reserve status. To maintain its role, the US must regain global trust and actively participate in CBDC discussions, or risk losing influence in monetary standard-setting bodies. Failure to develop a domestic digital dollar strategy may result in the US missing out on cross-border payments interoperability, leaving the Fed overseeing a smaller economic realm. reliance 3.2. Countries Making Progress on CBDCs in 2024 As of 2024, over 60 countries are in the advanced stage of development. Some notable progress include: 3.2.1. Argentina 3.2.1. Argentina In October 2023, the Central Bank of the Argentine Republic announced the development of a legal framework for the CBDC project in pesos and accelerated its work on legislation to implement the CBDC workflow in the country. CBDC project in pesos 3.2.2. Brazil 3.2.2. Brazil The Central Bank of Brazil is addressing privacy and infrastructure issues in the development of the digital real (DREX). A closed pilot program in 2023 sets the stage for the CBDC’s planned launch in May 2024, expanding its usage across all financial services. is addressing privacy and infrastructure issues planned launch in May 2024 3.2.3. Canada 3.2.3. Canada The Bank of Canada, in 2023, released an analytical note emphasizing the importance of offline payment functionality in CBDCs. released an analytical note 3.2.4. Laos 3.2.4. Laos Laos’s central bank is set to begin testing a prototype named Digital Lao Kip (DLak). set to begin testing 3.2.5. Philippines 3.2.5. Philippines The Central Bank of the Philippines announced a pilot project for testing wholesale CBDC until 2024 in collaboration with select financial institutions. announced a pilot project 3.2.6. United Kingdom 3.2.6. United Kingdom In February 2023, the Bank of England and HM Treasury released a consultation paper outlining the case for a digital pound. The decision to introduce the digital pound is yet to be finalized. consultation paper 3.2.7. Switzerland 3.2.7. Switzerland The Swiss National Bank, along with six commercial banks and the SIX Swiss Exchange, is conducting a pilot for a wholesale CBDC named the Swiss franc wCBDC. Known as Helvetia Phase III, the pilot aims to test the use of the Swiss franc wCBDC for settling digital securities transactions till June 2024. pilot for a wholesale CBDC 3.3. Cancelled CBDCs In this section, we delve into the landscape of canceled CBDC projects, exploring instances where countries or central banks decided to abandon their CBDC initiatives. Understanding the reasons behind these cancellations provides valuable insights into the challenges and considerations faced by nations in the dynamic realm of digital currency development. 3.3.1. Ecuador The Ecuadorian Central Bank (BCE) introduced its retail digital currency, the Sistema de Dinero Electrónico (SDE), in 2014, aiming to enhance access to banking services for the underprivileged and decrease reliance on physical cash. However, the project faced significant challenges and ultimately failed, leading to its cancellation in 2017. Despite the BCE’s initial projection of reaching half a million users by the end of 2015, only a fraction, specifically five thousand users, enrolled. By the close of 2017, there were 402,515 registered accounts, but less than 30 percent of these accounts were actively used. In 2016, the SDE constituted less than 0.003 percent of the total currency in circulation. he Sistema de Dinero Electrónico (SDE) Despite the original motivations to promote financial inclusion and reduce reliance on physical currency, the unfavorable perception of the central bank proved to be a substantial barrier to the success of Ecuador’s digital currency initiative. 3.3.2. Senegal The eCFA project, initiated in early 2016 in collaboration with eCurrency Mint and the Central Bank of West African States (BCEAO), aimed to explore the potential of a digital currency within the West African Economic and Monetary Union (WAEMU). However, the project faced challenges, and in November 2016, Banque Régionale de Marchés (BRM), a regional Senegalese bank, announced the launch of the eCFA in Senegal. It’s crucial to note that the eCFA in Senegal did not hold the status of legal tender according to BCEAO; instead, it was positioned as an experimental initiative for the central bank to observe and learn from. The project encountered criticism from BCEAO due to non-compliance with e-money regulations. Following the central bank’s distancing from the project, it was ultimately canceled in 2016. Central Bank of West African States (BCEAO) The BCEAO expressed a lack of interest in pursuing a CBDC in the foreseeable future. Despite the motivations behind the project, including the desire to enhance monetary sovereignty, challenges, and regulatory concerns led to the discontinuation of the eCFA initiative in the WAEMU region. Part IV: Future Prospects Part IV: Future Prospects The ongoing evolution of CBDC projects showcases various trends, including different stages of development, involvement of private companies, and diverse approaches, such as account-based and token-based CBDCs. Countries pursue CBDCs for reasons like financial inclusion, security, and digital sovereignty, with Russia exploring them for cross-border payments in response to restrictions on euros and dollars. CBDCs promise to modernize financial systems, enhance financial inclusion, and improve monetary policy efficiency. However, widespread adoption poses challenges related to privacy, security, and cross-border interoperability. Geopolitical tensions contribute to differing approaches, with the BIS and central banks actively researching cross-border CBDC use. Collaboration is essential to address cybersecurity, regulatory adjustments, and public adoption. The global CBDC exploration marks a transformative shift in finance, with key players driving development. Near-term scenarios may see CBDCs interoperable among geopolitically aligned countries, potentially causing fragmentation. 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Available at: https://www.bankofengland.co.uk/paper/2023/the-digital-pound-consultation-paper https://www.bankofengland.co.uk/paper/2023/the-digital-pound-consultation-paper Bank for International Settlements (BIS) (2021). CBDCs: an opportunity for the monetary system, Annual Economic Report 2021, Chapter III. Available at: https://www.bis.org/speeches/sp210629b.pdf. https://www.bis.org/speeches/sp210629b.pdf Bank for International Settlements (BIS) (2023). Blueprint for the future monetary system: improving the old, enabling the new, Annual Economic Report 2023, Chapter III. Available at: https://www.bis.org/publ/arpdf/ar2023e3.htm. https://www.bis.org/publ/arpdf/ar2023e3.htm Bank for International Settlements (BIS) (2022). Project mBridge: Connecting economies through CBDC, Available at: https://www.bis.org/publ/othp59.htm. https://www.bis.org/publ/othp59.htm Bank of Jamaica. (2022). Annual Report and Financial Statements, p. 60–61. ISSN 0067 3668. 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Results of the First Implementation Phase White Paper, Available at: https://nationalbank.kz/en/page/Digital-Tenge. https://nationalbank.kz/en/page/Digital-Tenge Reserve Bank of Australia. (2023). Australian CBDC Pilot For Digital Finance Innovation: Project Report. Available at: https://www.rba.gov.au/payments-and-infrastructure/central-bank-digital-currency/pdf/australian-cbdc-pilot-for-digital-finance-innovation-project-report.pdf https://www.rba.gov.au/payments-and-infrastructure/central-bank-digital-currency/pdf/australian-cbdc-pilot-for-digital-finance-innovation-project-report.pdf Reserve Bank of Australia. (2023). Research Project Exploring Use Cases for CBDC. Joint Media Release. Available at: https://www.rba.gov.au/media-releases/2023/mr-23-06.html https://www.rba.gov.au/media-releases/2023/mr-23-06.html Sveriges Riksbank. (2023). E-krona report. E-krona pilot, phase 3. Available at: https://www.riksbank.se/globalassets/media/rapporter/e-krona/2023/e-krona-pilot-phase-3.pdf. https://www.riksbank.se/globalassets/media/rapporter/e-krona/2023/e-krona-pilot-phase-3.pdf The People’s Bank of China (PBoC). (2023). Financial Statistics Report. Available at: http://www.pbc.gov.cn/en/3688247/3688978/3709137/5204426/index.html http://www.pbc.gov.cn/en/3688247/3688978/3709137/5204426/index.html Your feedback is highly appreciated! 🐼 Your feedback is highly appreciated ! 🐼 Also published here Also published here here