In the sweeping, global push to bring central bank digital currencies (CBDCs) from concept into reality, the smaller nations are making the biggest splashes. Their launches, and successes and failures, will be instructive for economic powerhouses such as the United States and China.
China, of course, is widely reported to be gearing up its digital yuan for national issuance at the Winter Olympics next year, with limited trials in retail and commercial settings.
It seems a given that CBDCs will take root in cross-border transactions, such as remittances, and commercial payments.
In one recent example, the Central Bank of the UAE (CBUAE) together with the Bank for International Settlements (BIS) Innovation Hub Centre in Honk Kong, and various authorities in Thailand, Malaysia and China issued the first Multiple CBDC Bridge (mBridge) Project report. The proof-of-concept is focused on international channels and cross-border payments using CBDCs.
But it is in the Bahamas and, now, Nigeria, that we’ve seen the most concrete, nationwide, “going live” domestic deployments. Nigeria, as we reported in this space, will bring its eNaira to launch as early as this week.
The digital fiat will have a legal tender and non-interest-bearing asset status, with both customer and value-based transactions capped at a certain limit. There are reports that merchants must accept the CBDC (as noted by sites such as CoinGeek) — which mirrors the mandate by El Salvador a few weeks back that merchants accept bitcoin as legal tender in that country’s own digital currency experiment.
There are of course fundamental differences between crypto and the CBDCs, tied mainly to the fact that the latter have a one-to-one relationship with fiat. Cryptos are backed really by speculator sentiment. But mandating universal acceptance does two things: it gets the digital offerings more firmly entrenched in commerce, to be sure. But it also forces at least some parties in commerce — that would be the merchants — to move away from some firmly entrenched payment form factors (including cash).
To be sure, there’s a technical aspect here, tied to digital wallets, to back office functions and even, conceivably hardware, that must be mulled by the merchants that are being told they must embrace CBDCs. Learning curves are steep, and we wonder what happens in the event that here are technical glitches such as the one that marred bitcoin’s launch in El Salvador in the early days. And mandating the use of CBDC in at least some respects may make merchants feel they can’t run their businesses in they ways they see fit (however that may be, for whatever reasons). Learning curves will be steep — and perhaps a bit bumpy.