3 Ambitious CBDC Projects of Superior Countries: e-CNY, Digital Euro, and Cedar

Bittime - 3 ambitious CBDC projects superior countries, e-CNY, Digital Euro, and Cedar. The CBDC narrative has resonated over the past few months, as a result of increasing interest in crypto and global financial challenges.

Superior countries such as China, the United States and the European Union have started ambitious CBDC projects by collaborating with partners from other countries.

Understanding CBDC Projects

Central Bank Digital Currency (CBDC) is a digital version of a country's fiat currency that functions as a claim against the central bank. 

Instead of printing physical money, central banks issue coins or electronic accounts backed by the full faith and credit of the government.

From the explanation of what CBDC is above, it can be understood that the purpose of the CBDC project is a step and/or initiative to create a digital version of a country's fiat currency.

Also Read: Wholesale CBDC vs Retail CBDC: This is what you need to know!

Currently there are thousands of digital currencies commonly known as cryptocurrencies. Bitcoin is the most famous decentralized cryptocurrency. 

There is also another type of cryptocurrency called stablecoins , whose value is pegged to an asset or fiat currency such as the dollar. 

Cryptocurrencies operate using distributed ledger technology, where multiple devices around the world, rather than just one center, continuously verify the accuracy of transactions. 

This is different from digital currencies issued by central banks.

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Challenges in CBDC Projects

There are several challenges that require careful consideration before a country launches a CBDC. One challenge is that people may withdraw too much money from the bank at once to buy CBDC, which could trigger a run out of funds at the bank. 

This can affect banks' ability to make loans and cause shocks to interest rates, especially in countries with unstable financial systems. 

Additionally, CBDCs pose operational risks as they are vulnerable to cyberattacks and must be designed to withstand such threats. 

Lastly, implementing a CBDC requires a complex regulatory framework that includes privacy, consumer protection, and anti-money laundering standards, all of which need to be strengthened before this technology can be adopted.

Also Read: CBDC: Safe and Practical Digital Money of the Future!

3 Ambitious CBDC Projects from Superior Countries

After understanding what CBDC is and the dynamics involved in working on CBDC projects, we now look at three ambitious CBDC projects from the following superior countries:

1. e-CNY CBDC Project

The first ambitious CBDC project came from the CBDC project initiated by China, namely e-CNY. Several countries involved in this project include Macau and Hong Kong.

China has high hopes for the performance of its central bank digital currency (CBDC), e-CNY. 

Because online payment systems such as WeChat Pay and Alipay are very popular among the public, the Chinese government expects these digital currencies to grow rapidly. 

However, more than two years after the launch of the initial pilot program, transaction levels remain disappointing. 

The digital currency, which is only available in a handful of pilot cities, has only processed USD 260 billion in value since its launch. By comparison, Alipay , China's largest payment processor, processes 17 trillion USD annually.

Also Read: Getting to Know China's Digital Yuan: Digital Currency Revolution from China

Excessive Expectations

A 2021 whitepaper published by a working group at the People's Bank of China stated that "e-CNY is essentially a substitute for cash in circulation." 

To complement this, the currency supports offline transactions via dedicated hardware, with the aim of increasing inclusion in the financial system. 

However, such a system will never be as widely used as the Chinese payments giant already is. 

Today, WeChat and AliPay offer a much wider set of features for users. Although features are slowly being added to e-CNY, there is no real reason for users to make it their primary platform of choice.

Future Developments of e-CNY

The development of e-CNY suggests that existing payment platforms may hinder CBDC adoption. 

In general, society doesn't care much about the technicalities of digital currencies, and if governments want to see widespread adoption, their CBDCs must meet society's specific needs or use great force to force adoption. 

The latter method is easier but carries many negative implications for privacy and personal freedom. Currently, the Chinese government appears committed to the first approach. 

With the emergence of new projects and new uses for CBDC, it is an interesting time to observe the development of e-CNY.

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2. Euro Digital CBDC Project

The next ambitious CBDC project is Digital Euro. A CBDC project that issues Euro currency in digital form and is only valid in European Union member countries.

The hope of the CBDC Digital Euro project is that the Digital Euro can function as a legal means of payment online in online shops and transfers between people in countries in the European region.

Euro Digital Vision

An explanation of the Digital Euro vision was delivered by Joachim Nagel in his speech entitled Digital Euro: Vision, Advances, and Challenges in Cambridge.

First, an increasingly digital world requires central banks to keep up. Ongoing digitalization is affecting the way people pay for goods. 

Eight years ago, one in five over-the-counter sales transactions was made by card. As payments become increasingly digital, digital products that complement analog cash products are needed.

Second, the increasing use of digital technology has increased interest in privacy and data protection. 

The digital euro will offer the highest possible level of privacy. The Eurosystem will not have access to the personal information of digital euro users. Greater control over personal data will be given to consumers.

Third, the development of a pan-European payment system will be facilitated by the digital euro. The euro has been around for a quarter of a century. Although there are successful and sophisticated digital payment systems at national level, there is still no single European solution for cross-border digital payments.

The digital euro will provide people with a standardized digital payment tool that can be used in everyday transactions throughout the Euro area.

Also Read: Eurostable Coin: Euro-Based Digital Currency Revolution

Criticism of the Digital Euro

The vision of the Digital Euro, which seems noble above, does not necessarily erase the sharp criticism of the Digital Euro CBDC project. 

Several strong criticisms of the Digital Euro were summarized by European economists, namely Ulrich Bindseil, Piero Cipollone, and Jurgen Schaaf.

Criticism of the Digital Euro CBDC project includes the following:

First, there is the argument that, if one bank is in trouble, it would be very easy to withdraw funds held at that bank and move them to deposit facilities offered by the central bank.

However, currently many retail customers can transfer savings to other private banks easily.

Moreover, these transfers are not restricted, while holdings of digital euros will be restricted.

Second, critics say that in an acute banking crisis across the economy, a digital euro could accelerate bank runs and worsen the crisis. 

Third, interest in the safety of central bank money can cause banks to lose long-term sources of financing from deposits. 

This could reduce pressure on lending to companies and households. 

According to the German Bank Association, large amounts of central bank money could be withdrawn from the banking system, which would limit the ability of commercial banks to recover customer deposits.

However, the combination of ownership limits, zero remuneration and the absence of corporate ownership of the digital euro would imply a relatively low overall level of digital euro ownership.

3. Cedar CBDC Project

The last ambitious CBDC project in this article is Cedar. An ambitious CBDC project initiated by the United States and followed by Singapore.

Project Cedar is a major initiative initiated by the New York Innovation Center (NYIC). This project is a series of technical research involving several phases, aimed at assessing the possibility of implementing financial technology solutions with the aim of increasing efficiency in cross-border wholesale payments.

Also Read: Understanding Central Bank Digital Money (CBDC) Privacy Issues

Phase I Cedar Project

In Phase I of the Cedar Project, a prototype for a wholesale central bank digital currency (CBDC) ledger was developed to demonstrate the potential use of blockchain technology in increasing speed, reducing costs, and increasing accessibility to key aspects in the cross-border wholesale payments market, particularly spot transactions foreign exchange (FX).

Cross-border wholesale payments refer to financial transactions involving central banks, private banks, corporations, and other institutions based in different jurisdictions. 

Also Read: About to List on Coinbase, Price of Drift Protocol (DRIFT) Soars 23%!

Foreign exchange spot trading is one of the most common types of cross-border wholesale payments, often required to support further transactions such as international trade or investment in foreign assets.

Although cross-border payments work effectively, there is still room for improvement. Typically, it takes about two days to complete a spot FX transaction. 

During this two-day period, settlement risk, counter-party risk, and credit risk remain, which may hinder an institution's ability to access liquidity.

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Cedar Project Phase II Collaboration with Ubin+

NYIC and the Monetary Authority of Singapore have collaborated on the Cedar x Ubin+ project. 

This research collaboration aims to test cross-border multi-currency use cases, where the vehicle currency is used as an intermediary for the exchange of less widely traded currency pairs. 

This experiment aims to explore the capabilities of distributed ledger technology (DLT) in establishing connectivity between diverse simulated currency ledgers, with the goal of reducing settlement risks and shortening settlement times.

Well, those are 3 ambitious CBDC projects from superior countries, from e-CNY, Digital Euro, and Cedar.

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Monitor price chart movements of Bitcoin (BTC) , Ethereum (ETH) , Solana (SOL) and other cryptos to find out today's crypto market trends in real-time on Bittime.

 

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