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Some central banks have given up on the race for digital currencies

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Some jurisdictions have slowed down or given up on the race to introduce a central bank digital currency (CBDC) as nations compete to do so. While many analysts were promoting the idea that CBDCs ought to be launched immediately, some nations have chosen against them, while others have tested CBDCs only to reject them.

Global central banks offered widely varied perspectives on why each nation’s CBDC-related initiative didn’t succeed or didn’t need to be launched in the first place, each with their own unique explanations.

There are four nations that have either suspended or paused their CBDC or CBDC-like efforts

Denmark is among the top European nations for digital payments since its citizens use cash far less frequently than citizens of other European countries.  The Nordic nation was also among the first to look into the prospect of releasing a CBDC, with the Danish central bank indicating interest in doing so in 2016. The Danmarks Nationalbank then began working on the digitization of the regional fiat currency and the potential launch of a digital Danish krone.

The Danish central bank rejected the notion of establishing a CBDC after only a year of study, concluding that it would have minimal impact on the nation’s financial system. According to the regulator, Denmark already had a “safe and effective” payment infrastructure in place that offered immediate payment choices.

Danmarks Nationalbank noted in a CBDC-related research in June 2022, “It is not obvious how retail CBDCs can offer considerable added value relative to the present options in Denmark.”

The central bank mentioned related expenses and potential risks while also highlighting potential challenges for the private sector. The bank is nevertheless keeping an eye on the global CBDC market and hasn’t fully ruled one out.

After the United States and China, Japan has the third-richest economy in the world. It also has the third-largest pension market globally. The Bank of Japan (BOJ), the country’s central bank, published its inaugural report on CBDC development in October 2020. In early 2021, testing of the digital currency proof-of-concept began, with the goal of completing the first pilot phase by March 2022. When CBDCs emerge, buying Bitcoin “will swiftly vanish,” according to Arthur Hayes.

Hiromi Yamaoka, a former BOJ official, cautioned against utilizing the digital yen as a component of the nation’s monetary policy in January, citing concerns to the stability of the economy.

The bank stated in a report it has no plans to issue a CBDC because of Japan’s “strong preference for cash and high ratio of bank account holding” in July 2022. The regulator also highlighted that for Japan to achieve safe and effective payment and settlement systems, a CBDC, as a public benefit, “must complement and coexist” with commercial payment services.

The paper stated that “therefore, it must be taken seriously that CBDC is being actively evaluated as a feasible future alternative in many nations.”

Dinero electrónico (DE), the official name of Ecuador’s national currency, was first declared by Banco Central del Ecuador (BCE) in 2014. Increasing financial inclusion and decreasing the need for the central bank to keep and distribute vast amounts of fiat currency were two major drivers of the DE program.

As of February 2015, Ecuador had successfully embraced DE as a workable form of payment, enabling qualified users to send money using a smartphone app. By utilizing a national identity number to open an account, citizens were explicitly permitted to deposit or withdraw money at specified transaction centers.

Despite the fact that Ecuador’s DE was based on the US dollar rather than a sovereign national fiat currency, several industry watchers questioned if Ecuador’s DE was indeed a CBDC. After accepting US dollars as legal money in September 2000, the Ecuadorian government listed the maintenance of its dollar-based monetary system as one of the objectives underlying the DE platform.

Online reports claim that Ecuador’s DE ran from 2014 to 2018, gathering 500,000 members at its peak out of a population of about 17 million. The experiment was ultimately discontinued in March 2018, according to the BCE, who cited legislation that had been passed that had abolished the central bank’s electronic money system. The law, which was passed in December 2021, mandated that private banks should handle the outsourcing of e-payment systems.

Ecuador seems to have maintained skepticism against the entire CBDC issue years after abandoning its central bank’s digital money effort. Former general director of Ecuador’s central bank Andrés Arauz cautioned eurozone policymakers in August 2022 that a digital euro might threaten not only privacy but also democracy.

The Bank of Finland has some news for those who believe that the Bahamas and China were the first nations in the world to implement a CBDC. The Finnish central bank described its Avant smart card technology, which it developed in the 1990s, in a study titled “Lessons learnt from the world’s first CBDC” that was published in 2020. The Bank of Finland said that Avant was not just the only project that was put into production at the time, but also the one that “may be called the world’s first CBDC.”

The Bank of Finland began its Avant initiative in 1993 as a result of years of research. The concept involved using smart cards, which are the same as those found in modern debit and credit cards. Various sources claim that the attempts to develop the present CBDCs came before Avant cards.

The fact that cards would likely be an added feature for contemporary CBDC systems sets them apart from Avant in a significant way. Cards made up the majority of Avant, according to the Bank of Finland’s data. According to the current language used for CBDCs, the bank also suggested that the project effectively represented a “token-based retail CBDC.”

According to the Bank of Finland, Avant grew outmoded and was eventually terminated in 2006 since it cost more than standard debit cards. The Avant card was initially free for consumers, but later fees were added, which had a negative impact on demand for the card, the bank said. Debit cards were developing at the same time, incorporating smart card technology, and became more affordable for customers.

Despite having higher costs, the Avant card provided several unexpected advantages over debit cards. The Bank of Finland claims that because Avant offered a way to avoid opening or using a bank account at all, it allowed customers to make anonymous payments.

Finland appears to support a pan-European digital currency, despite having abandoned its own CBDC-related project years ago. Olli Rehn, governor of the Bank of Finland, advocated for the implementation of a digital euro in August 2022 that would work with commercial fintech products to facilitate cross-border payments in Europe.

CBDCs are now being watched closely by every nation in the globe, including those that have already put their own CBDC plans on hold. Since many central banks have emphasized the significance of coexistence between CBDCs and the private financial sector, it is crucial to draw lessons from past experiences even though it is still unclear how particular CBDCs will actually play out.


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