114 Countries Are Working on CBDC Projects

The number of countries developing a digital central bank currency is growing fast.

The number of countries developing a digital central bank currency is growing fast. Half the world is now preparing for the rollout of CBDCs.

Global CBDC development got a major boost during the coronavirus pandemic. According to a recent report from the U.S.-based Atlantic Council, 114 countries are currently working on digital central bank money, up 280 percent from May 2020, when "only" 30 countries were involved in CBDCs.

Meanwhile, 46 percent of countries are at least in a testing or development phase, according to the report. Only Ecuador and Senegal have put their own digital central bank projects on the back burner. In general, the People's Republic of China is seen as a pioneer in CBDC development. Beijing is currently testing the digital renminbi (e-RMB) on nearly 260 million people. On top of that, CBDCs are already in use in eleven countries, mostly in Caribbean states like the Bahamas and Jamaica.

And also in Nigeria. Africa's largest economy launched the e-Naira in October 2021, but demand has been modest. Only 0.5 percent are said to have used the digital currency so far. The central bank responded by starting to limit cash withdrawals from ATMs as of January 9.

"G7 in development phase"

The seven most economically powerful industrial countries are also working on the "money of the future." The Federal Reserve started a large-scale experiment in November last year. Among other things, the European Union has tasked Amazon with developing a prototype for a digital euro. In addition, almost every G20 country has made "significant progress" over the past six months, according to the Atlantic Council report.

CBDC: an opportunity or unwanted?

The benefits of digital central bank currencies are clear. They can make cross-border payments easier and generally help bring in people from regions with weak financial infrastructure. Still, the Atlantic Council sees several challenges tied to a broad rollout of the central bank's digital currency.

On one hand, there is the risk of cyberattacks on the dominant system. On the other hand, strong consumer demand could trigger a bank run, which would reduce lending and shake up interest rates.

In addition, the experts at the U.S. Atlantic Council say the rise of different CBDCs could also have downsides for the overall geopolitical balance of power. It could make it easier to dodge sanctions, for example in Russia. Since the start of the war, the federation has been working at full speed on launching a digital ruble. It should be ready in 2024.

And finally, the issue of privacy is inseparable from CBDCs. Supporters argue that digital central bank currencies and privacy can be reconciled. But a practical solution still has not been found. Despite all the innovation, there is still a bitter aftertaste.