Central Bank Digital Currency Tracker – Atlantic Council

www.atlanticcouncil.org/cbdctracker

3rd Dec 2022

The ABCs of CBDCs

What is a CBDC?

A Central Bank Digital Currency (CBDC) is the digital form of a country’s fiat currency that is also a claim on the central bank. Instead of printing money, the central bank issues electronic coins or accounts backed by the full faith and credit of the government.

But don’t digital currencies already exist?

There are already thousands of digital currencies, commonly called cryptocurrencies. Bitcoin is the most well-known fully decentralized cryptocurrency. Another type of cryptocurrency are stablecoins, whose value is pegged to an asset or a fiat currency like the dollar. Cryptocurrencies run on distributed-ledger technology, meaning that multiple devices all over the world, not one central hub, are constantly verifying the accuracy of the transaction. But this is different from a central bank issuing a digital currency.

So why would a government get into digital currencies?

There are many reasons to explore digital currencies, and the motivation of different countries for issuing CBDCs depends on their economic situation. Some common motivations are: promoting financial inclusion by providing easy and safer access to money for unbanked and underbanked populations; introducing competition and resilience in the domestic payments market, which might need incentives to provide cheaper and better access to money; increasing efficiency in payments and lowering transaction costs; creating programmable money and improving transparency in money flows; and providing for the seamless and easy flow of monetary and fiscal policy.

What are the challenges?

There are several challenges, and each one needs careful consideration before a country launches a CBDC. Citizens could pull too much money out of banks at once by purchasing CBDCs, triggering a run on banks—affecting their ability to lend and sending a shock to interest rates. This is especially a problem for countries with unstable financial systems. CBDCs also carry operational risks, since they are vulnerable to cyber attacks and need to be made resilient against them. Finally, CBDCs require a complex regulatory framework including privacy, consumer protection, and anti-money laundering standards which need to be made more robust before adopting this technology.

What are the national security implications of a CBDC?

New payments systems create externalities that impact the daily lives of citizens, and can possibly jeopardize the national security objectives of the country. They can, for example, limit the United States’ ability to track cross-border flows and enforce sanctions. In the long term, the absence of US leadership and standards setting can have geopolitical consequences, especially if China and other countries maintain their first-mover advantage in the development of CBDCs. Our work on digital currencies at the GeoEconomics Center is at this nexus of the future of money and national security.

To read more about the project you can access our press release here.

Atlantic Council releases new state-of-the-art Central Bank Digital Currency Tracker

www.atlanticcouncil.org

July 22, 2021

WASHINGTON, DC – July 22, 2021 – The Atlantic Council’s GeoEconomics Center today launched a state-of-the-art Central Bank Digital Currency (CBDC) Tracker, offering an unprecedented global look at the adoption of digital currency. The original version of the tracker– launched in April 2020– has been used by the Federal Reserve, the Bank of International Settlements, and news outlets across the world to help understand the decisions countries are making in this rapidly advancing space.

The new interactive database released today features 81 countries, more than double the number of countries the GeoEconomics Center identified as being active in CBDC development in 2020.

China has been charging ahead in its development of its own digital currency. As of June 2021, the People’s Bank of China (PBOC) announced that nearly 21 million personal and 3.51 million corporate digital yuan wallets had been opened. Aiming for broad circulation in 2022, the PBOC and the Hong Kong Monetary Authority last week announced plans to test the digital yuan with foreign visitors ahead of the 2022 Beijing Winter Olympics.

In the United States, the Federal Reserve remains sluggish in its progress. Of the four largest central banks in the world (the Federal Reserve, the European Central Bank, the Bank of Japan, and the Bank of England), the Federal Reserve is the only one to not commit to a digital currency test project.

Other key findings show that as of July 1, five countries have fully launched CBDCs, with the Bahamas being the first nation to reach wide distribution. Of the remaining 76 countries, 33 are in research, 15 in development, and 14 in pilot stage, including major economies like Sweden and South Korea.

“Before Covid, central bank digital currencies were largely a theoretical exercise. But with the need to distribute unprecedented monetary and fiscal stimulus around the world, combined with the rise of cryptocurrencies, central banks have quickly realized they cannot let the evolution of money pass them by,” said Josh Lipsky, Director of the GeoEconomics Center and former Senior Advisor at the IMF.

In addition to tracking individual country progress, the database shows the specific technology and security choices countries are making in their CBDC designs. This research suggests that without standards and international coordination the financial system may be headed for a significant currency interoperability problem in the future.

Launched in 2020, the Atlantic Council’s GeoEconomics Center is organized around three pillars: the Future of Capitalism, the Future of Money, and the Economic Statecraft Initiative. The Center focuses on impactful data visualization projects and has a proven track record of internationally recognized work. In the past several months, the Center produced major reports on the dramatic changes in global monetary policy, and the shifting use of sanctions worldwide.