Which countries have digital currency

The Caribbean DCash pilot project started in March 2019. DCash launched in April 2021, but stopped functioning 10 months later. The technology did not work for almost 2 months. The official reason was suspension amid a ban by the Caribbean Central Bank.

France

European countries participated to varying degrees in the creation of CBDC-analogs of national currencies – especially the euro. Finland was one of the first, but the project was terminated before the concept was finalized. France only became involved in the creation of a CBDC variant in 2019, which is much later than its progressive EU partners. Nevertheless, in a short period of time, the country has proposed 5 projects, 3 of which have been launched for testing as pilot programs.

The state-owned Banque de France supports the following initiatives:

• Digital Euro for retail transactions. Development started in 2021, currently used in test payments.
• Digital euro for wholesale transactions. Planned as an independent payment instrument at the same time as the retail version of CBDC. Also running in test mode.
• Stella token in partnership with the Bank of Japan. The project remains in the development stage.
• Jura token – with Swiss National Bank. Under development since 2021, test version not yet prepared.
• CBDC currencies for wholesale settlements with Singapore and Tunisia. Projects are in pilot mode.

Tunisia

The country’s state-owned Central Bank (Banque Centrale de Tunisie) is also working on an e-Dinar currency. The first reports about it appeared in November 2019. The e-Dinar project is not actively developing and is still in the development stage by 2023.

Tunisia was formerly a French province. Despite the current independence, the countries are still economically in close contact.

In 2021, France took the initiative to introduce CBDC in interstate settlements with Tunisia. The project has already worked in pilot mode.

Singapore

A similar initiative from the Bank of France was supported in the city-state of Singapore. Part of mutual settlements between the countries is carried out using CBDC within the framework of the pilot program.

Also, since 2022, a separate development of the token Project Ubin+ has been underway in Singapore. It is supervised by the state Monetary Authority of Singapore. A test version of the currency has not yet been unveiled.

UAE

The Central Bank of the United Arab Emirates has also joined the development of its own CBDC-currency. Its name is Abel. The pilot version was released in November 2019 – just six months after the announcement of plans for the creation. At the same time, another Arab country, Saudi Arabia, joined its testing.

The pilot project is testing bulk transfers between the United Arab Emirates Central Bank (UAECB) and the Saudi Arabian Monetary Authority (SAMA).

Abel’s CBDC currency is planned for mutual settlements between local financial institutions and the states’ central banks. In the future, cross-border payments can be conducted with the participation of monetary institutions of any countries.

Saudi Arabia is not independently developing a CBDC.

India

The digital rupee project was proposed by the Reserve Bank of India (RPI) in 2020. The country’s monetary and currency policy is characterized by mutually exclusive recommendations regarding cryptotechnology. At first, the project did not receive support and was put on hold. Later, work on the Digital Rupee resumed. In 2023, there is a major shift in the adoption of the CBDC variant of the national currency.

Indian government officials are negotiating cross-border government transfers in CBDC with several countries at once – UAE, Singapore and Mauritius. With the digital rupee, India wants to move away from traditional US dollar settlements and strengthen the domestic currency.

Nigeria

The country is among the three states that managed to introduce CBDC-currency into the national economy. This happened in 2021. Nigeria has the highest level of adoption and digitalization compared to the rest of the African continent. The country ranks 11th in the world in the adoption of cryptocurrency exchanges.

Despite the technological superiority in the field, Nigeria adopted the electronic version of the national currency because of the negative factor. The country has a critically high inflation rate of about 20% annually.

The uncontrollable situation with rising prices forced citizens to look for alternative ways of mutual payments. Crypto-assets turned out to be more stable than the national currency. The government lost control over financial flows between Nigerians. To regain it, the digital naira was introduced into the economy. On the other hand, government regulators tightened policies on cryptocurrency exchanges and made it more difficult for the public to use them.

However, the scenario did not materialize. In its first year of existence, eNaira did not get the support that government economists expected. Only 0.5% of the population started using the digital version of the national currency. Others started looking for workarounds to apply crypto-coins.

Nigerian authorities continue to develop methods to motivate and pressure the population to make eNaira more popular. For example, in mid-2022, a restriction on cash withdrawals from ATMs was introduced. Amounts over $225 can only be transferred to CBDCs.

Bahamas

Another 2 participants that have introduced electronic options into the national economy are dwarf states. The Bahamas is similar to the Caribbean in this regard. With the help of the digital Sand Dollar, they are trying to strengthen the domestic economy and lose dependence on settlements in US dollars.

Development of the CBDC began in 2017 under the leadership of the state-owned Central Bank of Bahamas. A pilot project was unveiled in July 2019, which has grown into full use. Sand Dollar is accepted in all shopping centers in The Bahamas from 2021. It has also become partially used to pay employee salaries.

Jamaica

The country has introduced a CBDC currency called Jam-Dex. The state-owned central bank (Bank of Jamaica) said it will replace 5% of Jamaica’s physical dollars with its digital counterpart each year. One of the main reasons, as with the Caribbean, was the country’s poor reputation.

In 2020, Jamaica was placed on a sanctions list because of financial assets with criminal records. The restrictions made cross-border payments difficult. The goal of the Jam-Dex currency is to make financial exchange between nations more accessible.

The difference between digital money and cryptocurrency

CBDC is essentially fiat (fiduciary) money, despite the blockchain component. They are issued by the state central bank. This type of digital currencies can be categorized as fiat by 2 main features:

• CBDC is centralized – that is, it is issued and controlled by a specific (state) authority.
• It isbacked by the same factors as the issuance of cash – monetary as well as economic policy and the authority of the country.

But to understand the difference between CBDC and cryptocurrencies, we need to start with the peculiarities of traditional money and blockchain assets. The emergence of the latter has shown a radically different way of mutual settlements. With the help of crypto transactions, it is possible to transfer money directly from the sender to the receiver without the participation of third parties. The circulation of fiat funds requires monetary, banking and payment intermediaries.

There are a couple of other important features of cryptocurrencies:

• Transaction authenticity and transparency becomes part of the transaction. Without receiving confirmation on the network, the block will not be closed and the transfer will not complete.
• Speed of transfers. Transactions on the blockchain are not instantaneous – time must be spent proving on the network. However, they are faster than in banking because they eliminate intermediate steps between sender and receiver.

Such a financial system is more advanced than current monetary policy. The latter is complicated by bone-headed rules, a huge number of intermediate steps, and a peg to and settlement in the U.S. dollar.

Issuing, recycling, and backing cash is time-consuming and costly to the government in the current reality.

These and other problems of the traditional monetary system can be solved by blockchain currencies. Therefore, central banks in different countries want to utilize the technology to update monetary policy.

However, there is another side – decentralized crypto-technologies can completely eliminate the role of the state from financial flows. The task of a central bank in an ideal world is to form a safe environment for participants. To this end, laws are written and supervising authorities are created. Compared to traditional stock assets, decentralized blockchain money (Bitcoin, Ethereum and others) is immune to government control of any particular country.

Therefore, classic cryptocurrencies will likely never be officially accepted as a means of payment in the economy.

CBDC is a compromise between two worlds. It is issued and controlled by a monetary and currency institution, which also creates the rules of use. At the same time, CBDC has a number of features and attributes of blockchain technology:

• Fast transfers with no extra steps.
• Transparent transactions.

Which countries are planning to use digital money

The countries closest to adopting CBDC are the United Arab Emirates, France, Russia and China. However, only the latter two countries are talking about the domestic economy. In the UAE and the European Union, digital currencies are partially introduced for financial flows between states. However, in all 4 countries there is a high chance that pilot projects will turn into regular practice.

Pros and cons of digital currencies based on user experience

CBDCs are the next level of cashless payments on a potentially more secure basis. Even a partial transition to such currencies carries benefits:

• Savings on printing banknotes.
• Security in storage and transportation.
• Ability to track movement (transparency).
• Independence from the dollar or other intermediary currency.
• Ability to automate tax collections and financial flows.

Regardless of which countries have and use digital money, central banks face a technological disconnect. Now, as in the case of France, each CBDC exchange channel between states has to be set up independently – going through long testing and refinement procedures.

When used in the domestic economy at the population level, the application of CBDC requires even longer preparation. It is important to change intermediate factors – payment systems, general level of awareness and motivation of people.

Risks

The establishment of CBDC comes with concerns about technological vulnerability. Hacking in a government system is as likely as in decentralized protocols. This factor casts a shadow over the adoption of digital currencies.

For the public, the introduction of CBDC into widespread use on par with traditional forms also brings risks. The main one is the reduction of economic freedom.

This is the main difference between CBDC and cryptocurrencies. At any moment digital assets of citizens can be blocked – due to an attack of cybercriminals or by decision of a supervisory authority.

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