Central banks increasingly explore CBDCs, favoring wholesale versions.
Early CBDC adoption faces challenges despite advancements in China.
CBDC future uncertain, but may reshape global finance.
A new survey by the Bank for International Settlements (BIS) reveals growing interest among central banks in exploring Central Bank Digital Currencies (CBDCs), with a majority of respondents favoring wholesale versions over those accessible to the public.
The survey, conducted between October 2023 and January 2024, revealed that 94% of the 86 participating banks are supportive of the idea of a CBDC. This figure marks an increase from the 90% of 81 respondents recorded in 2021.
Furthermore, the surveyed banks indicated a preference for a wholesale CBDC instead of a retail version. A wholesale digital currency is designed for banks and large financial institutions, while a retail CBDC would be accessible to the public.
Several countries have explored the idea of a CBDC, with China, one of its earliest proponents, launching a digital yuan (e-CNY) pilot in 2019. The following year, the Bahamas launched the first CBDC, the SandDollar. Nigeria followed suit in 2021, introducing its digital currency, the e-Naira.
Following the launch of its mobile app in 2022, China’s e-CNY has witnessed impressive growth. By June 2023, 950 million transactions worth $253 billion were completed using the digital yuan. Nonetheless, this figure represents about 0.16% of the domestic cash circulation according to PwC data.
Furthermore, Nigeria’s e-Naira has faced challenges, with transactions conducted using the digital currency totaling just N29.3 billion since its launch. Market experts have attributed this low usage to the government’s ban on cryptocurrency. Meanwhile, the Central Bank of Nigeria (CBN) has partnered with Gluwa, a blockchain company, to boost e-Naira adoption.
While it launched with much hype, The Bahamas SandDollar has also witnessed minimal adoption. Since its launch, the digital currency has only reached $2.1 million, 0.5% of the country’s total cash circulation. The BIS stated:
“For retail CBDCs, more than half of central banks are considering holding limits, interoperability, offline options, and zero remuneration,”
As central banks worldwide explore the potential of CBDCs, the experiences of early adopters like China, the Bahamas, and Nigeria highlight both the promise and challenges of this emerging technology.
While China’s e-CNY shows growth potential, the tepid adoption of the SandDollar and the e-Naira underscores the complexities of integrating digital currencies into existing financial systems.
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