The Dutch Central Bank said in a report released Tuesday that it would like to become the proving ground for the EU’s central bank digital currency (CBDC).
The report, which Coindesk called “a striking endorsement of CBDC – perhaps, as the Dutch Finance Minister Wopke Hoekstra told parliament Tuesday, the loudest in Europe so far,” comes as nations around the world scramble to digitize their currencies.
Korean-langauge blockchain news outlet The Bchain dives into the global CBDC competition, which it likens to a war.
Growing interest in CBDCs comes as people make less use of cash, credit cards and digital payment solutions become universal and cryptocurrencies proliferate, reducing the functionality and utility of money. The global recession in the wake of the COVID-19 pandemic is weakening the influence of legal tender and central banks around the world.
Accordingly, central banks increasingly see CBDCs as an alternative to keep cash distribution and state-led monetary policy going. A report released in January by the Bank of International Settlements revealed that 80% of the 66 central banks surveyed were researching CBDCs. Some 40% were conducting experiments or proofs-of-concept, and another 10% have developed pilot projects.
Perhaps most startling is how developed economies in North America, Europe and the Pacific Rim have shed their initial skepticism and are now actively considering issuing CBDCs.
The BChain predicts that with central banks believing the end is nigh for paper money, countries will quietly compete for dominance of digital currency.
In particular, there are signs that China and the United States are revving up for battle. China, which embraced the idea of CBDCs much earlier than the United States, may feel that digital currencies could enable Beijing to strengthen the influence of the yuan beyond what is currently possible in the dollar-based system.
A Chinese retail CBDC or “digital yuan” could have a great impact on South Korea, where locations that receive many Chinese tourists already support Chinese mobile payment services. If the digital yuan comes into distribution through mobile payments, you could see the ecosystem that develops expand into other sectors.
A director from the blockchain development firm Atomrigs Lab told The BChain that like Bitcoin, CBDCs recognize no borders. Accordingly, digital currency competition is ultimately about growing the influence of the ecosystem that uses your currency. He predicted that China would attempt to establish a digital yuan zone focused on the Asia-Pacific region, and said the Bank of Korea’s belated embrace of CBDC research was in response to this.
The Bank of Korea plans to construct and test a CBDC pilot program by the end of 2021. Experts predict, however, that since South Korea already boasts a well-developed payments system, the Bank of Korea is likely first to issue a wholesale CBDC aimed at financial institutions rather than a retail currency.