The world’s central banks are working on their own digital currencies

Since talk around digital currencies began to pick up, central banks have been circling like hawks. The idea of decentralized currency just seems like too much, so the world’s central banks want to see a digital currency they can regulate. 

Central banks investigate digital currencies

Canaccord Genuity analyst Michael Graham said in his latest “Digital Assets Quarterly” report that many central banks are now setting out plans to test and launch their own digital assets backed by their own fiat currencies. 

A recent survey conducted by the Bank for International Settlements found that 80% of central banks are investigating digital currencies, up from 65% in 2017. Half of them have moved past the concept phase and into testing. Additionally, 10% of central banks representing about 20% of the world’s population expect to issue their own digital currencies within the next three years.

China leads the way

Perhaps unsurprisingly, China is among the leaders in the effort by central banks to develop their own digital currencies. The nation has been conducting widescale testing in recent months. China is planning a two-tier approach. The Chinese central bank plans to issue the digital yuan, officially called the Digital Currency Electronic Payment, while the nation’s commercial banks and tech companies distribute it to consumers.  

U.S. Federal Reserve Chairman Jerome Powell talked recently about the possibility of a digital dollar, saying it was more important to get it right than to be the first with a digital currency. Fed Governor Lael Brainard has said before that they are testing distributed ledger technologies to see how the dollar could be digitized, and the Boston branch of the Fed also said it is working with MIT’s Digital Currency Initiative to explore a digital dollar. 

The distribution of stimulus checks gave the topic of a digital dollar even more attention, as many said the process would have been faster and easier if every American had a digital wallet the stimulus funds could be deposited into. 

Other developments in central bank digital currencies

The Bahamas actually became the first nation to launch its own digital currency with the Sand Dollar, which is backed by the Bahamian dollar. One of the main goals of the project is to provide more access to financial services for those in some of the more isolated islands of the Bahamas. The first phase of the launch focuses on getting the private sector ready with three tiers of authorized accounts. 

Personal wallets will have the least demanding opening requirements and restrictive transaction limits, while standard personal accounts will be available for customers who have already had the require due diligence for banking services. The third type will be fore enterprises and have more stringent requirements and higher transaction limits. 

As the Bahamas pushed ahead, the European Union is falling behind in the race to develop a digital currency. European Central Bank President Christine Lagarde said in September that a digital euro could launch in the next two to four years.