A central bank digital currency (CBDC) uses a blockchain token to represent the digital form of a fiat currency for a particular country or nation.
Over 80% of central banks said they have approved one or more budgets to start working on CBDC initiatives. In the U.S., for example, a digital currency would make it easier for the Fed to send direct payments to 331 million Americans and not be as reliant on private banks, lenders and credit agencies.
One feature of CBDCs is that they reduce the amount of cash in circulation, such as coins and bank notes. Commercial banks will have a role in distributing the digital currency to users in most countries.
Another key feature is tracking. While Bitcoin was designed to be decentralized so that no government could control or manipulate it, digital currencies created by central banks give governments higher control and visibility of how money flows through the global economy.
Privacy issues, ease of use, security access, network fees, and payment delivery methods are all concerns for Fed officials working to narrow their thesis on how to approach the official digital U.S. dollar.
To put it lightly, the United States is moving slowly with CBDCs. The U.S. Federal Reserve Chair Jerome Powell said he isn’t in a rush to adopt CBDCs because of the risks such currencies pose to the status of the dollar.
“We don’t feel an urge to be first,” he said in an interview with the New York Times, “effectively, we already have first-mover advantage because the U.S. dollar is the reserve currency. Powell said it would likely be "years rather than months" before the Fed had any sort of CBDC ready.
China, on the other hand, with a more strict philosophy on surveillance, wants Chinese citizens to adopt the digital yuan as quickly as possible.
The Chinese Yuan
On the CBDC Progress Map we can see that China is leading the world on the development of their electronic Chinese yuan, having already reached the pilot stage with real customers.
China started working on a CBDC program in 2014, with one of the primary goals to have it ready by the 2022 Winter Olympics.
China’s central bank, the People’s Bank of China, is now in talks with hundreds of private companies to continue expanding its network, after a successful beta across four Chinese cities in May — Shenzhen, Suzhou, Chengdu and Xiong’an.
A total of 20 million yuan, worth about $3 million, was up for grabs in their most recent lottery in December, according to CNBC. Winners received a digital red packet envelope via the app containing a maximum of 200 yuan of the digital currency. About 100,000 red packets were distributed.
Roughly two-thirds of Americans reported that they made no in-person payments during the first month of the pandemic, while online sales surged and stocks like PayPal, Etsy and Shopify jumped to new highs.