Mark Jones
LONDON (Reuters) – A total of 134 countries, representing 98% of the global economy, are now exploring digital versions of their currencies, with more than half in advanced development, pilot or launch stages, a close study showed on Thursday.
A study by the US-based Atlantic Council think tank found that all G20 countries except Argentina are now in one of these distant phases, although, remarkably, the United States is falling further behind.
While banks are still moving towards a “wholesale” digital dollar, one for the broader US population now looks “stalled”, the report said, with Federal Reserve Chairman Jerome Powell saying this month that “nothing is even remotely close” close to happening.”
US President Joe Biden has ordered officials to study a digital dollar in 2022, but it has become a divisive political issue as Biden’s Republican rival in this year’s US election race, Donald Trump, has vowed to prevent it.
“The big headline here is that the divergence between the world’s major central banks over CBDC (central bank digital currency) is growing,” said Josh Lipsky of the Atlantic Council, pointing out how far ahead China, Europe and Japan are.
Proponents say digital currencies will open up new functionality and provide an alternative to physical cash, which appears to be on the decline. But they have also sparked protests in several countries over the possibility of government surveillance.
The risk of the U.S. falling behind is a “more fragmented international payments system,” Lipsky added, saying Washington could also lose some of its global financial clout if other countries push for and set new standards for CBDCs.
Some 36 pilot projects are currently underway, including China’s e-CNY, which is being tested on 260 million people in 25 cities, as well as in Europe, where the European Central Bank (ECB) has been working for six months to “prepare” a digital euro.
The Bahamas, Jamaica and Nigeria are already fully operational, although the 8-nation Eastern Caribbean Currency Union (ECCU) recently became the first to shut it down after issues prevented users from accessing digital wallets.
A WORLD DIVIDED
The report also shows how work on wholesale CBDCs has doubled since Russia’s 2022 invasion of Ukraine and subsequent response to G7 sanctions.
There are currently thirteen cross-border wholesale projects underway, including one called “mBridge” that connects China, Thailand, the UAE and Hong Kong, and will expand to an as-yet-unknown 11 countries this year.
All BRICS members – Brazil, Russia, India, China and South Africa – are at an advanced stage, and Lipsky predicted that at this year’s summit in Russia the bloc would take further steps to create payment systems alternative to the dollar.
All could be part of an avalanche of major launches by 2027, as could the ECB, whose current pilot scheme is seen as a potential model for other leading major economies.
China’s digital yuan is still the largest and most advanced pilot, although it has been tried in a variety of scenarios, from public transport tickets and COVID-19 checks to the purchase of oil and precious metals.
When will China fully launch the electronic yuan? “That’s the question,” Lipsky said. “Not this year, but in 2025 or 2026? Hard to say”.