In 2023, new developments in the implementation of Central Bank Digital Currencies (CBDC) are expected. From Europe to Russia, everyone has taken significant steps to accelerate the process. But at what price?
Over 90% of central banks around the world are working on Central Bank Digital Currencies, or CDBCs. From Africa to China, regions have prioritized steady development in order to facilitate CBDC deployment.
Europe, in particular, has rushed to implement its digital euro. Its most recent progress report, titled “Progress on the Investigation Phase of a Digital Euro,” was released at the end of last year. The European Central Bank (ECB) announced an accelerated timeline for its September 2022 report.
Since October 2021, the ECB has been actively investigating a digital euro. This happened just before the crypto market peaked, which is not a coincidence. The ECB has stated unequivocally that it regards stablecoins as competition. The European Central Bank has actively discussed the development of its digital euro with both public and private entities.
This digital euro scheme is expected to begin development right now, in January 2023. In the second quarter of 2023, the European Commission plans to propose a regulation establishing a digital euro. Even legislative preparations have begun. This means that the digital euro could be operational in the coming years.
In addition, the report discusses a few possible designs for the digital euro. Instead of using peer-to-peer transactions, the ECB prefers that most digital euro transactions involve an intermediary, primarily large banks. The ECB will, however, ultimately control the issuance and settlement of the digital euro. Furthermore, the intermediaries will serve as user-facing side apps, websites, or wallets.
While many CDBC users prioritize privacy, the ECB has stated that complete anonymity is impossible with the digital euro. Not just because of criminal activity. However, if the digital euro is anonymous, people can protect their purchasing power by holding a large number of CDBC. The ECB does not want this for financial stability reasons.
The digital euro scheme requires every merchant in the Eurozone to accept payments in digital euros on a daily basis. However, employees can also be paid in digital euros. It also requires that digital euros be made available to those who do not have access to digital payments.
This quarter, Russia is investigating two potential cross-border CBDC settlement models. This was in response to the sanctions imposed as a result of the ongoing conflict with Ukraine. A presentation by the Bank of Russia was shared with Kommersant, a local news outlet. BeInCrypto received critical information via Telegram.
The proposal includes two models that can be used as a starting point. Skeptics, on the other hand, believe that technological capabilities and geopolitical situations will likely keep these models a concept of the distant future.
The project is part of the larger digital ruble initiative. It intends to create a digital currency that will exist alongside cash and non-cash rubles. In comparison to virtual currencies such as bitcoin, the digital ruble is expected to pose little risk. The main reason for this is that it will be issued by the state monetary regulator and backed by traditional money.
According to the report, the two cross-border CBDC models differ in terms of operation and currency transfer modes. The first model is based on one-on-one bilateral agreements between countries to integrate digital currency platforms. Individual country platforms would be required to facilitate format conversion and transfer between countries in accordance with agreed-upon rules and standards.
The second approach takes a more centralized approach. Each county’s platform will be linked to a single integration platform in this case. Based on developed unified protocols and standards, this will act as a payment facilitator between digital currency platforms. The integrated platform will function as a hub, with a star connecting the individual platforms.
The first model provides a more simple solution. The second model, on the other hand, ensures transparency because all countries are linked to a central entity. “The implementation of cross-border settlements using the Central Exhibition Center will depend on readiness, not so much on the Russian side,” admits Roman Prokhorov, Chairman of the Board of the Association of Financial Innovations (AFI). Here, our jurisdiction is confidently second only to China in terms of promoting the CECB project, but this is dependent on the readiness of our partners. ”
Given the technological and political readiness, the two-way settlement scheme would be implemented initially, beginning with China. Given the international scrutiny surrounding Russia’s invasion of Ukraine, the multi-party approach appears to be a futuristic concept. Apart from the geographical tension, CBDCs pose some risks in general.
CBDCs, which can be weaponized as a total state surveillance and control tool, have been extensively covered by BeInCrypto. Despite efforts to incorporate privacy into the CBDC, various policy analysts have stated otherwise. In a November 28 report last year, Nick Anthony stated, “A CBDC would most likely be the single largest assault on financial privacy since the creation of the Bank Secrecy Act and the establishment of the third-party doctrine.”
Nonetheless, authorities continue to take steps to implement CBDC control in any way they can. Now, 2023 could be a pivotal year in understanding the practical applications of CBDCs.
