I recently watched a video streaming event from the International Monetary Fund (IMF) concerning digital currency. The event occurred in Washington D.C. on October 14, 2022, so it is the most recent information I’ve found from an official group about this important subject.
This short post is a follow up to an article I wrote several weeks ago about the future of digital currency coming to the United States. If you haven’t read that article, you may want to do that now for some background on why this topic is so important to everyone.
Though the IMF presentation concerns the move from physical currency to digital currency internationally, keep in mind that the leaders in the United States government also support a move to digital assets.
The speakers at the October 14th event included —
Kristalina Georgeieva (Managing Director, IMF)
Queen Maxima of the Netherlands (UN Secretary-General’s Special Advocate for Financial Finance)
Bo Li (Deputy Managing Director, IMF)
Vera Songwe (Co-chair, High-Level Panel on Climate Finance, and Chair, Liquidity and Sustainability Facility)
Cecelia Skinglsey (Head of the BIS Innovation Hub)
Perry Warjiyo (Governor, Bank Indonesia)
The moderator was Kathleen Hays, Global Economics and Policy Editor, Bloomberg.
You can watch the entire conference video (1 hour, 3 minutes) at Digital Currency: Risks and Rewards. What I’d like to share with you in this article are some of the points Bo Li made about the programmability of digital currency (about 18 minutes into the video).
Programmability of Digital Currency
“CBDC [Central Bank Digital Currency] is obligation of Central Bank. An obligation of Central Bank is a legal tender in every country, so it is widely accepted. That creates potential value for everyone to use it ... The third way we think CBDC can improve financial inclusion is through what we call programmability. That is CBDC can allow government agencies and private sector players to program, to create smart contract, to allow targeted policy functions. For example welfare payment, for example consumption coupon, for example food stamp. By programming CBDC those money can be precisely targeted for what kind of people can own and what kind of use this money can be utilized, for example for food. So, this potential programmability can help government agencies to precisely target their support to those people who need support. So, that way can also improve financial inclusion.”
CBDC Cost/Benefit Analysis
The World Economic Forum also addressed the programmability of digital currency in its “Policy-Maker Toolkit.”
You can read the entire document at World Economic Forum: Central Bank Digital Currency Policy‑Maker Toolkit, Centre for the Fourth Industrial Revolution.
Here are brief excerpts from the WEF document.
Programmable nature of wholesale CBDC could also apply to other use cases (e.g. within financial market infrastructure)
The programmable nature of wholesale CBDC can support interbank securities derivatives transactions, including cross-border ‘atomic’ swap transactions.” (To understand cross-border transactions, click on Enabling Cross-Border High Value Transfer Using Distributed Ledger Technologies - Bank of Canada’, and, Synchronised cross-border payments - European Central Bank and the Bank of Japan)
Using conditional programming and cryptographic hash functions in a process called “hash time-locked contracts”, the full and final payment and settlement for a trade occurs at the same time the asset is fully (or “automatically) delivered to the buyer. Both the asset and currency are located on the distributed ledger and they are traded simultaneously (this capability supports delivery-versus-payment goals)
In this phase, the policy-maker considers how the CBDC should be designed in order to achieve the target outcomes and mitigate the risks identified in the preceding sections of this toolkit — (One of the questions to consider:) Programmability features — For what purposes and capabilities should the CBDC be potentially programmable, if any?
The Journalist and Digital Currency
That last question is an important one to consider because of how governments could use programmability to control how citizens of a country use digital currency. That’s where journalists can help. Reporters who are curious and skeptical can keep a close check on government power. That is, after all, a primary task of journalists.
An estimated 90% of all countries are moving toward digital currency. What will that look like? We don’t have to look far because several countries are already using or testing CBDC systems. Journalists can report about what’s happening with CBDCs in those countries and how the United States might do something similar in the near future.
The World Economic Forum published this statement almost four years ago —
A survey of central banks shows that a majority are collaboratively looking at the implications of a central bank digital currency. Although many have reached the stage of considering practical issues, central banks appear to be proceeding cautiously and few report plans to issue a digital currency in the short or medium term.
The four key properties of money are: issuer (central bank or not); form (digital or physical); accessibility (widely or restricted); and technology.
Sweden and Uruguay are notable not just for the advanced stage of their work but the amount of information their central banks have made publicly available about their respective projects. Bank For International Settlements, January 2019
That was four years ago. Just a couple of months ago (September 2022) EuroNews reported that almost 100 countries are actively investigating launching their own digital currency. That’s according to the IMF (International Monetary Fund). Here are some of the countries where CBDCs have been launched or tested —
The Bahamas
Nigeria
Eastern Caribbean Union
Sweden
China
Jamaica
Ukraine
India
The Sand Dollar was issued by the Central Bank of the Bahamas in October 2020. It was the first nationwide CBDC in the world. (EuroNews)
The Bahamas: The World’s First Digital Currency | F&D Magazine
Nigeria became the first country in Africa to launch a CBDC last October. The eNaira is stored in a digital wallet and can be used for contactless in-store payments, as well as for transferring money.
Countries in the Eastern Caribbean Union created their own form of digital currency meant to help speed transactions and serve people without bank accounts. The seven countries involved are Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines. Anguilla was the only country in the union that opted out.
Sweden is undertaking testing of a digital currency that has been dubbed the e-krona. There are plans for the testing to advance from simulated participants to a testing environment with external participants.
China became the world's first major economy to pilot a digital currency in April 2020. The People's Bank of China is aiming for widespread domestic use of the e-CNY, or digital yuan, in 2022. It currently has more than a hundred million individual users and billions of yuan in transactions, according to the IMF.
Jamaica’s prime minister Andrew Holness confirmed that the Bank of Jamaica will roll out a digital Jamaican dollar in 2022 following a successful pilot last year.
The National Bank of Ukraine has been exploring the possibility of issuing a national digital currency since 2016. Now the country is preparing a pilot test of its own CBDC.
India is set to launch a state-backed digital currency by next year, the government announced last week. The "digital rupee" will be based on blockchain technology and is expected to be up and running by the end of March 2023. It will be backed by the Reserve Bank of India.
The European Central Bank (ECB) announced last July that it is actively looking into creating a digital version of the euro.
President Joe Biden signed an executive order on March 9 ordering the US Treasury Department, the Commerce Department and other key agencies to prepare reports on "the future of money" with a view to perhaps creating a digital dollar. One measure of the order was to find ways to help 5 per cent of Americans who do not have access to bank accounts, while another key facet was to assess the technological infrastructure needed for a potential American CBDC.
(EuroNews)
There are many tools available for journalists covering the CBDC story. For example, the CBDC Tracker has a world map with the status of CBDC in various countries. The map is updated on a regular basis with information about the CBD “phase” for each country. Those phases include —
Research
Proof of Concept
Pilot
Launched
Cancelled
Next Newsletter
For those of you who cover news in the European Union, I’ll share the latest update for a Digital Euro in the next newsletter.
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