Research from European blockchain company Guardtime suggests that the current pandemic may have accelerated the launch of a major central bank digital currency by up to five years.
According to Guardtime, the company said the growth of many technology companies, improved use of networking and telecommunications platforms, and digitalization of the world in general could mean the first central bank digital currency, or CBDC, from a major economy could be rolled out within three years. The firm works with several central banks around the world in exploring the development of a CBDC.
“There is an increasing sense of a ‘race to the moon’ regarding central banks launching their own digital currencies, because this could radically enhance their country’s and currency’s positions on the global economic stage,” said Guardtime’s head of strategy Luukas Ilves. “Not only has Coronavirus accelerated the digitisation of society, it has also further transformed how we use money.”
Ilves said due to many countries’ enforcing social distancing guidelines and encouraging people to stay at home, the corresponding surge in online transactions seems to have made CBDCs look like a more practical solution for payments. Though he said a government-led move to a CBDC could be “slow, gradual and fragmented,” central banks are "showing how digital transformation can be done right.”
The firm added:
"The development of CBDCs has been accelerated by up to five years. There is also no doubt in our mind that a major central bank will soon launch a digital currency and we expect this to happen within the next three years."Of the world’s largest economies — the United States, China, and Japan — China arguably leads the pack for CBDCs, having started piloting trials of its digital yuan in April 2020. In the United States, Federal Reserve chair Jerome Powell said in May the government body would soon be issuing a discussion paper to explore the implementation of a digital dollar. The Bank of Japan has also started a trial of its digital yen scheduled to end in March 2022.
Related: The CBDC promised land: As some governments falter, others press on
According to a study released by consulting giant PwC in April, there are more than 60 central banks currently exploring CBDCs, with each country facing unique challenges for a potential rollout. Guardtime said some of the concerns facing major central banks include whether a CBDC will deliver equal or greater financial security than physical cash, and whether it can offer more functionality than existing commercial banks.
“The introduction of central bank digital currencies could upend the global economic order,” said the blockchain firm. “This technology could bring a multitude of benefits such as more efficient trade, greater financial access for millions of people, and a reduction in crime. But there are important technological barriers to overcome regarding scalability and security.”
