The central banks of all global economic superpowers are rushing to digitize their economies by developing Central Bank Digital Currencies (CBDCs). Most nations are lagging behind China, a country that is dominating the world’s blockchain industry. Rumors claim that the digital yuan may launch next year. Will Europe and the United States have the chance to catch up?
Besides the People’s Bank of China, the European Central Bank and the U.S. Federal Reserve are the loudest when it comes to digital currencies. Both central banks seek to introduce a digital euro and digital dollar respectively. But did they even start developing a CBDC and if so, how far have they progressed?
Prospects of a digital euro CBDC
After China, the European Union is the public government entity regarding sharing information about CBDCs. Prominent leaders such as the ECB President Christine Lagarde have openly called for the adoption of blockchain technology. More than that, we know that the EU has regularly managed the regional blockchain industry, including the regulation of cryptocurrency services.
With years of planning, the ECB finally decided to formalize the process and share it with the public. In October, the Central bank published a new ‘Report on a digital euro.’ Within it, the ECB shared most of the information that we need to know for now.
For example, the report notes that blockchain technology, together with CBDCs, has the chance to completely revolutionize the digital payments sector. The digital euro can potentially be designed in such a way that it can provide users with a stable online currency that can exclusively be utilized for payments.
ECB’s new report states on numerous occasions that the digital euro will simply retain the form of a currency and that it is vastly different from a cryptocurrency or a stablecoin.
Here, we see that the Central bank plans to do everything to prevent citizens from using the digital euro as an investment asset. One part of the document states:
“The digital euro should be an attractive means of payment, but should be designed so as to avoid its use as a form of investment and the associated risk of large shifts from private money (for example bank deposits) to digital euro.”
Furthermore, we see that the ECB has not even begun with developing the digital euro. The paper notes that a High-Level Task Force will experiment with the digital euro within the Eurosystem. It is highly likely that the ECB will test the currency in a regulatory sandbox before it even considers technical development.
Is there any potential timeline? The EU will decide only after mid-2021 whether it plans to launch a digital euro project. Effectively, Europe will start at a time when China will probably launch the digital yuan.
Prospects of a digital dollar CBDC
Across the Atlantic ocean, things have been quieter than experts have expected. Considering the amount of official discussion surrounding the digital dollar, it almost appears that it became a taboo topic. The past administration has been incredibly quiet when it comes to blockchain technology. However, the influence China has in the industry may just lead to a stronger reaction from the United States.
During the recent IMF virtual panel on cross-border payments, the Federal Reserve Chairman Jerome Powell issued official statements concerning the digital dollar. According to a comment from the Chairman, “it is more important to get it right than to be first.” On that account, we can conclude that the United States is not rushing to launch a digital dollar anytime soon.
The first economic superpower plans to analyze CBDCs beyond their basic utilities and prospects. Powel stated that it is important to fit a digital dollar into existing circumstances, monetary stability, and legal frameworks.
The Chairman shared no timelines while sharing his comments. However, we expect the U.S. to stay competitive with both China and Europe. In that case, the country would most likely start to develop the digital dollar around the same time the ECB does.
In either case, one aspect is extremely clear. No country will be able to surpass China in its blockchain development plans. For now at least.