The emancipation by the central banks around the world to launch a government-backed and functional digital currency is poised to take a new twist in the coming year 2021. The race to debut a central bank digital currency (CBDC) gained more grounds in 2020 as the advent of the COVID-19 pandemic made many of these banks to begin considering the launch of cash alternatives to payments.
The underlying motive to develop a cash alternative for some central banks predate the COVID-19 pandemic, but the highly contagious viral pandemic increased the pace and the urgency of the venture. The launch and issuance of a CBDC also have innumerable advantages as it can help drive innovation and sustainability in each country’s domestic payment ecosystem.
In its earlier released publication on the collaborative efforts of some central banks, the Bank of International Settlements (BIS) noted that on the part of its profiled apex banks, “the common motivation for exploring a general purpose CBDC is its use as a means of payment. Providing cash to the public is a core responsibility of central banks and a public good,” adding that “a CBDC could provide complementary central bank money to the public, supporting a more resilient and diverse domestic payment system. It might also offer opportunities not possible with cash while supporting innovation.”
But besides the feeling of responsibility to serve the general public as noted by the BIS, central banks may be developing their CBDCs in response to the threats posed by cryptocurrencies.