Nine out of ten central banks around the world are working on plans for their own central currencies (CDBCs), according to a new study by the Bank for International Settlements (BIS). The study highlights the growing popularity of CBDC as a reliable alternative to cryptocurrencies and shows that an increasing number of projects are nearing completion.

Argentina’s central bank unveiled plans for the central bank’s digital currency this week. (Photo by Matías Baglietto / NurPhoto via Getty Images)

BIS, an umbrella group representing central banks around the world, today released its CBDC study for 2021 and reduces the growing popularity of CBDCs to two main factors. “Both Covid-19 and the emergence of stable coins and other cryptocurrencies have accelerated the work of the CBDC – especially in developed economies, where central banks say financial stability has increased as a motivation for their participation in the CBDC,” said Aneke Kose and Ilaria Matei. write.

The CBDC is a digital currency issued directly by a central bank such as the Bank of England. Speaking of Technical monitor last November, Fernando Fernandez Mendes de Andes, an economist and professor at IE Business School, explained: “The CBDC is a complement to banknotes and coins, to cash. These are legal money issued by the central bank, a debt of the central bank, bought in full in cash, and legal banknotes and coins without exchange risk, nor additional costs.

CBDCs are a type of stable coin, a digital currency linked to a real-world asset. This means that their value remains more stable than cryptocurrencies such as bitcoin, which have large price fluctuations. Tether and USD Coin are examples of strong coins, but currencies remain a small part of the overall cryptocurrency market, accounting for only 6% of the value of all cryptocurrencies in circulation last year, the study said.

This stability makes the CBDC an attractive prospect for central banks that want to give citizens a safe way to use digital money. In fact, the BIS survey shows that 90% of the 81 central banks it surveyed are “engaged in some form of CBDC activity.” This is an increase of 86% last year and represents a 35% increase in CBDC activity over the last five years.

Most of the surveyed countries are now working on both wholesale CBDCs used for transactions between financial institutions and retail versions for consumers, with the percentage of respondents working on both currencies rising from 52% in 2020 to 67% last year. None of the respondents worked only on wholesale CBDC, a drop of 9% last year, suggesting an increased focus on offering a digital money solution for consumers and businesses.

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More projects are nearing maturity, the study said. Twenty-six percent of CBDC’s work is now under development or pilot, up from 14 percent last year.

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The CBDC countries now include Argentina, which last week announced it was investigating how it could introduce digital pesos. Other countries are down the line with their own digital currencies, and according to PwC’s global CBDC index released last month, the world’s best CBDC retailer is eNaira in Nigeria.

However, plans for a CBDC in the UK appear to be stalled. Last November The Bank of England (BofE) announced in November that it plans to hold a consultation on the introduction of the CDBCto be opened this year. However, a January report by the House of Lords criticized the plan as a “problem-solving solution” that provides limited benefits and causes potential privacy issues.

And although CBDCs are becoming increasingly popular, they may not be a suitable option for developed economies. That’s what Zack Myers, a senior fellow at the Center for European Reform think tank, said Technical monitor in January that he believes much of the interest in CBDCs is driven by fear of being missed, especially since China became the first major economy to test the digital currency, e-CNY, in April 2020. “None of the [the central banks] they want to be seen as lagging behind, “Myers said. “They are watching what is happening in China and they think we should have that.”

Read more: The United Kingdom will regulate stable coins and issue NFT

Nine out of ten countries developing central bank digital currencies

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