The concept of Central Bank Digital Currency (CBDC) has been attracting interest across the globe with most central banks exploring and examining the CBDC. Globally the key trends of payment modernization include transformation of immediate interbank gross settlement and emphasis on a faster retail payment system. Therefore many central banks foresee potential innovation in CBDC.
What is Central Bank Digital Currency (CBDC)?
Central Bank Digital Currency (CBDC) is a legal tender issued by Central Bank in a digital form. It is the same as a fiat currency but issued in digital form. With increasing globalization and digitalization of financial services, CBDCs have the potential to create a future value transfer platform that contributes to a more innovative and competitive payment system.
CBDCs are likely to drive efficiencies and effectiveness of payment systems by ensuring that their users access safe digital money. A Central Bank Digital Currency is an innovation in the form of money issued as well as the underlying infrastructure on which transactions can happen.
Why it is needed to issue a Central Bank Digital Currency (CBDC)?
- CBDCs can bring innovations in payment systems.
- To foster financial inclusion, rendering the process easier for people who currently do not have bank accounts.
- To improve retail cross-border payments.
- To prevent fraud.
Top 5 Central Bank Digital Currency (CBDC) Initiatives
- The Bahamas
In October 2020, the Sand Dollar became the first CBDC in the world that achieve an official launch. The digital currency became available to all Bahamian citizens. Project Sand Dollar is an initiative by the Central Bank of the Bahamas to issue a digital representation of the Bahamian Dollar. The digital version of the Bahamian Dollar is available for both wholesale and retail applications. Wholesale application would ordinarily restrict usage to payment settlements at the interbank level and the retail application allows the general public to make and receive digital payments. Sand Dollar is much safer than cash and it provides excellent records of income and spending.
- Nigeria
Nigeria launched Africa’s first digital currency the eNaira in October 2021. The goal of the eNaira is to improve financial inclusion, improve the accountability of the informal sector and facilitate remittances.
- China
China was one of the early adopters that initiated research on CBDC in 2014. In 2016 central bank established a prototype for digital currency by the end of 2017 financial institutions were involved in testing the fiat currency. Presently the pilot has been initiated in selected regions to ensure safe and efficient transactions.
- Russia
The digital ruble project was initiated by Russia on 15 August 2023 and it aims to launch the digital ruble by 2024 and it will be available to Russian citizens by 2025. The initial phase of the pilot project involves the participation of 13 banks and a restricted group of participants.
- Turkey
In 2022 Central Bank of Turkey announced that it had successfully executed its first payment transactions using digital Lira and intends to launch CBDC in 2023. The Central Bank of the Republic of Turkey said it will continue conducting restricted, closed-circuit pilot testing with technology players in the first quarter of 2023. Upon completion of this phase, the Turkish Central Bank will expand the project to include chosen banks.
| Country | Project | CBDC Status | Use Case |
| The Bahamas | Sand Dollar | Launched | Retail |
| Nigeria | e-Naira | Launched | Retail |
| China | e-CNY | Pilot | Retail and Wholesale |
| Russia | Digital ruble | Pilot | Retail and Wholesale |
| Turkey | Digital Lira | Pilot | Retail |
Crossborder Central Bank Digital Currency (CBDC) Projects
- Project Nexus
Launched in July 2021, Project Nexus aims to connect national instant payment systems for cross-border transactions in under 60 seconds. The prototype successfully linked Eurosystem, Malaysia and Singapore in March 2023.
The next phase involves BIS and Central banks to connect their domestic payment systems.
Countries- Eurosystem, Malaysia, Singapore, Indonesia, Philippines, Thailand.
Use Case- Retail and Wholesale.
- Project Jura
The Bank for International Settlements (BIS) Innovation Hub, Banque de France and Swiss National Bank launched Project Jura and they will conduct an experiment using wholesale CBDC for cross-border settlement on a distributed ledger technology.
Countries- France and Switzerland
Use Case- Wholesale
- Project Rosalind
In June 2022, the Bank of England partnered with the BIS Innovation Hub to create prototypes for a CBDC application program for retail CBDC. The project aims to understand how central bank ledgers can effectively communicate with private sector vendors.
Countries- the UK and the BIS
Use Case- Retail
- Project Aber
The UAE and Saudi Arabia launched a bilateral CBDC pilot project Aber in 2019 for cross-border transactions by using decentralized ledger technology.
Countries- The UAE and Saudi Arabia
Use Case- Wholesale
- Project Polaris
In February 2023, the Bank for International Settlements Nordic centers designed project Polaris to explore security and resilience in CBDC systems. The project will begin with an analytical report on offline payment possibilities and functionalities for CBDC platforms.
Countries- Nordic Centers
Use Case- Retail
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Conclusion
Central Bank Digital Currency (CBDC) will assist central banks in reaching out to the unbanked people. Nations may ultimately benefit from CBDCs as it will improve financial stability. CBDCs will ultimately take over as the norm for domestic and international payments.