A look at the countries currently leading the 'Central Bank Digital Currency' race

The tiny archipelago nation launched its nationwide CBDC – the Sand Dollar - back in October 2020. According to the project's website, the Sand Dollar will bring speed, efficiency, and security to payments. It will also boost financial inclusion, curb money laundering, provide better income and spending records, etc.

What's more impressive is that the Sand Dollar is by no means a half-baked attempt at CBDCs. It is a  well-rounded project that ticks all boxes. It even topped the list of PwC's top 10 retail CBDC projects back in May 2021. However, one year later, the IMF pointed out some areas of improvement that authorities in the Bahamas need to address. For instance, they stated that only 0.1 percent of the population uses the Sand Dollar and therefore, some measures to increase adoption were required.

On October 25, 2021, Nigeria became the second country in the world and the first country in Africa to launch its CBDC project. The currency is called the eNaira, and it was launched under the leadership of President Muhammad Buhari.

Since then, the project has progressed in leaps and bounds. In fact, Nigeria is already in the process of phasing out physical cash, with the eNaira positioned as the replacement. On December 7, the country's central bank announced limits on the withdrawal of physical money from banks and ATMs in a bid to push eNaira usage.

However, not everyone is onboard with the initiative. Some analysts believe the policy will negatively affect the people it is supposed to benefit and encourage the hoarding of cash. Others argue that proper infrastructure is required to integrate the eNaira fully and smoothly in the country, and until then, the policy to limit withdrawals should not be implemented.

In response, CBN governor Godwin Emefiele said that authorities would review, alter and possibly even reverse the policy if and when required. However, he maintained that steps like these are long overdue if the biggest economy in Africa is to leapfrog into a cashless economy.

China launched its CBDC pilot program way back in 2019, and the country has made significant progress since then. The digital yuan, or the e-CNY, can now be used across 23 major cities in the country, including Beijing, Shenzhen, and Shanghai. It can be used several for basic transactions, such as paying for public transport and even online shopping. Moreover, more than 5.6 million merchants accept e-CNY as a mode of payment.

In Feb this year, it was also introduced to visitors at the Winter Olympic Games in China. They could exchange their foreign fiat currency for CBDC cards preloaded with e-CNY. They could then use this card to pay for products and services in the Olympic village, just like they would with physical currency. With so much progress being made, it is no surprise that the e-CNY has been used to process payments worth almost $15 billion between Dec 2019 and August 2022.

India is another major country that is working towards developing its own CBDC project. Finance minister, Nirmala Sitharaman, said that the digital rupee would boost the Indian economy in many ways and help reduce the cost of currency management. Although the country has maintained a strict stance towards cryptocurrencies, the Indian government, in collaboration with the Reserve Bank of India, are keen on working on the CBDC project.

In October, the RBI announced a pilot program for its CBDC. This test run would be conducted in 4 cities – New Delhi, Mumbai, Bengaluru and Bhubaneshwar – and then be extended to nine more cities soon. However, not everyone will have access to the digital rupee. Instead, only a handful of selected customers, banks and merchants will participate in the test program. It must also be noted that if all goes well, India, with its 1.4 billion population, will be the largest economy in the world to implement the CBDC project successfully.

For the longest time, the United States neither approved nor denied the intention to launch a CBDC pilot. The Federal Reserve has been going through the various implications of issuing a CBDC and how it might affect the economy and the citizens. But they clearly stated that unless they receive authorization from Congress, they will not be going forward with the idea. However, it is unlikely that the largest economy in the world will abstain from issuing its own CBDC project. Some experts also believed that authorities were working on a CBDC project, but it was being kept hidden from the outside world.

These suspicions were confirmed last month when a senior official announced that the New York Federal Reserve has been working on a CBDC project for several months. He stated that, unlike most other nations working on retail CBDCs, the NY Fed's project is a "wholesale" CBDC. This means that it is more geared toward transfers between banks around the world.

Speaking at the Singapore FinTech Festival, the senior official stated that stage one of the test program was complete and proved that international transfers were greatly improved through the use of blockchain. He also announced a joint research initiative with the Monetary Authority of Singapore. Through this partnership, the NY Fed will explore interoperability and ledger design, settlement of cross-border cross-currency transactions, settlement risk, etc.

Central Bank Digital Currencies, or CBDCs, are the government's response to the expanding space of cryptocurrencies and blockchain technology. In an age when everything, including finance, is driven by innovative technology, it makes sense that central banks worldwide will rely on the possibility of developing their own electronic payment systems.

However, for those who are wondering whether CBDCs will replace cryptocurrencies, it is highly unlikely. Undoubtedly, they will have some impact on the crypto space, but on a positive note. Also, if implemented correctly, CBDCs could help establish trust among skeptics who do not fully trust government-backed blockchain projects.