Rise of sovereign digital currencies: domestic and global implications

THE launch of a central bank digital currency (CBDC) in China has been much anticipated especially following the first public test of a prototype in four Chinese cities (Shenzhen, Suzhou, Xiong'an New District and Chengdu), as well as the recent release of the Draft Law of the People's Bank of China (PBC) on October 23, 2020 giving the currency legal status.

While the Chinese CBDC (which is formally referred to as Digital Currency/Electronic Payment or DCEP) will be unrivalled in terms of its sheer size and possible impact, a handful of smaller countries including the Bahamas ("Sand Dollar"), the Marshall Islands ("SOV"), Cambodia ("Bakong"), Sweden ("E-Krona"), Ukraine (Hryvnia), Uruguay ("e-Peso") among others have also already moved forward to introduce their own CBDCs.

According to a survey of 66 central banks by the Bank for International Settlements (BIS) conducted in January this year, there has been an explosion in global interest in CBDCs. About 80 per cent of central banks around the world are involved in researching the impact of CBDCs, with many already having undertaken proof-of-concept of some form by way of testing the feasibility of introducing CBDCs.