Cryptocurrencies have gained momentum and attracted more interest in recent years, usually in response to the volatile price of bitcoin.
The potential for a decentralised and regulation-free currency with the ability to disrupt the traditional banking system has irked government regulators and central banks who control the monetary system.
This had led to much regulatory uncertainty around digital assets.
The other ongoing issue with cryptocurrencies is that they have not yet become a convenient way to make payments, not least because their value fluctuates widely.
But many aspects of the concept deserve more than rejecting them out of hand, which is why central banks have started to look at their own versions of digitised money.
These so-called central bank digital currencies (CBDCs) are not the same as decentralised cryptocurrencies, like bitcoin. Instead, they are a digital representation or virtual form of fiat currency and use blockchain technology in a centralised, controlled and regulated way.
These digital currencies are backed by a country’s fiat currency, typically at a ratio of 1:1, and are just another part of the central bank-controlled money supply, together with other forms of money like bills, coins, notes or bonds.
According to a study by the Bank for International Settlements, about 80 central banks worldwide are looking at developing their own digital currency. Some of the most advanced pilot projects can be found in the Caribbean.