As technological advances and digital transformations accelerate, central banks around the globe have started to reinvent their local currencies for the digital era. A central part of reform is the issuance of so-called Central Bank Digital Currencies (CBDCs). A CBDC is a digital form of money, similar to Bitcoin, using blockchain technology and is widely available to the general public. However, Bitcoin’s value fluctuates with supply and demand while a CBDC is fixed. Bitcoin also guarantees anonymity while all transactions using CBDC remain on record. At that point, there is a concern that privacy infringement problems will occur due to the traceability of CBDCs.
From the government’s point of view, money flow can be grasped at a glance, enabling efficient monetary policy operation. However, there are many aspects to consider for CBDCs to become a reality in our society. Using CBDCs makes more convenient and cheaper financial transactions possible for consumers with assets safely stored in an electronic wallet. CBDCs are based on e-commerce. Therefore, for CBDCs to be successfully introduced, everyone must have access to digital payments. Also, coordination with commercial banks will be necessary. If the government provides a very low-cost digital payment system, it might be challenging for private payment providers to continue their services. As they cannot compete with the government’s deep pockets, they can be useless. These issues are why central banks are considering more than IT, such as studying law and analyzing the financial system’s stability while conducting research.
Although there are many downsides to CBDCs, the world is stepping up efforts to digitize money for many good reasons. In Sweden, the Riksbank’s central bank has undertaken several CBDC experiments. As the technology review has already been completed, the CBDC introduction will be decided through a referendum this year. The most notable point is the CBDC in China. China is considered the most likely to introduce digital currency in 2022 among major developed countries. In the last Beijing Winter Olympics, they opened the digital yuan (e-CNY) to foreigners. Currently, 11 cities, including Beijing and Shanghai, are distributing it on a trial basis, with cumulative transactions reaching 87.5 billion yuan as of the end of last year. As China accelerated its development of a CBDC, the US, which was cautious about issuing a CBDC, also began to move. Last month, President Joe Biden officially announced that he would push for digital dollars. The Bank of Korea was lukewarm about issuing CBDCs at first. However, it has been conducting research for several years to respond to the flow of change. Some simulations are underway in preparation for the introduction, and a decision has yet to be made. In the second half of this year, the Bank of Korea plans to further expand the simulation through linkage experiments with financial institutions and continue to verify the design method.
“The private sector leads the development of technology. Central banks and government agencies are in a position to adapt while accepting technology development in the private sector. Therefore, the central bank will never be able to turn a blind eye to the spread of digital money,” says Lee Byeong-wan, professor at Yeungnam University’s School of Economics and Finance. He emphasized the role of the bank. “When the central bank issues a CBDC, the bank, not the individual, has to prepare for it. Technical preparations should allow customers to deposit and withdraw from existing or new CBDC accounts.” He also mentioned digital unprivileged people. “To overcome digital illiteracy, individual efforts will be needed. It will take a long time, but think about the popularization of smartphones only a year after its advent. This flow is a natural consequence of the digital technology revolution and cannot be resisted.”
