What do people think about CBDCs?

Governments around the world are hard at work on developing digital central bank currencies (CBDCs).

Governments around the world are hard at work developing digital central bank currencies (CBDCs). But how do they perform in practice?

These days most states accept that digitizing the financial sector also requires changes to money. To compete with Bitcoin and other decentralized solutions, more than 114 governments are working on their own digital central bank currencies. The big difference with classic cryptocurrencies: these CBDCs (short for Central Bank Digital Currency) give the state a high level of control over digital money. Properties can be programmed by the state.

Critics like whistleblower Edward Snowden view it as alarming: governments could curb our freedoms to use our money, he says. Supporters say CBDCs make it easier to combat money laundering and reach more people, especially those without access to banks.

Eleven countries have already adopted CBDCs as official tender. Seventeen others have begun pilot projects. But how are CBDCs proving themselves in practice? And what do people in those countries think of their governments' ambitions?

Nigeria: eNaira hard pressed

Nigeria was the first African nation to launch a CBDC in October 2021. The eNaira is meant to boost the financial resilience of the population and strengthen the country’s economic power. To that end, the Central Bank of Nigeria introduced three billion eNaira and integrated corresponding payment infrastructure with local banks. The "cashless Nigeria" agenda, however, faces a challenge: public acceptance. Estimates suggest only about 0.5% of citizens use the eNaira. On one hand the country wrestles with 19% inflation. On the other hand, CBDCs offer far less privacy than cash.

To get the eNaira into more hands, the government is increasingly restricting cash transactions: ATM withdrawal limits and higher fees are meant to speed up the transition. The population is thus largely pushed into the eNaira. But Nigerians are turning to decentralized alternatives like Bitcoin. A spike in demand in late January 2022 even pushed BTC prices on local exchanges up briefly to 60,000 US dollars.

China: the world’s largest pilot project

China is at the forefront of CBDC development. The rollout of the e-yuan as a government currency isn’t finished yet, but in 2019 the PRC kicked off a wide pilot. The People’s Bank of China program counts as many as 260 million digital yuan wallets. In August 2020 the test program was expanded to 28 major cities.

The government regularly issues e-yuan to the public to boost usage. To celebrate the start of spring, several Chinese cities handed out e-yuan with a total value of about $26 million—not a big success. CBDC expert Dr. Jonas Gross explains the slow adoption: "Why would a CBDC be used as a payment method when there are already more efficient, cheaper, and more convenient options like WeChat Pay or Alipay?"

Jamaica: a Caribbean-friendly CBDC

Jamaica became the first country in May 2022 to introduce a digital currency as legal tender. The digital Jamaican dollar was named Jam-Dex. It’s expected that storage and processing costs of cash will fall by about seven million dollars annually. BOJ Governor Richard Byles told Blockworks: "The digital Jamaican dollar offers a safer and more convenient alternative to physical notes and coins and can be used without a bank account."

Many Jamaicans don’t have access to the traditional financial system. A study from the Caribbean Policy Research Institute shows that "one of the costliest tasks for people without a bank is getting into the current banking system." Nevertheless, Jam-Dex gets little attention as an alternative.

Only about three percent of the population has downloaded the required app. Without government pressure, the fear of using digital central bank currency remains. This may also be because the benefits of CBDCs for the state are clear, while for people they remain unclear.