Despite the unpredictable and volatile nature of cryptocurrencies such as Bitcoin or even Dogecoin, central banks globally are conducting trials or at the very least thinking about using their own digital currencies.

According to data from the Bank of International Settlements, over 80% of the world’s central banks are conducting research on CBDCs (central bank digital currencies). A whitepaper on digital currencies written by Accenture and Swift also finds that more than half of the world’s central banks are actively exploring the use of CBDCs.

Efficient and cost-effective, CBDCs have been drawing much interest in recent years with financial regulators optimistic about the technology’s ability to better track transactions and spot illegal or fraud-related activity.

China so far has achieved the most progress in developing its own CBDC, having brainstormed the idea as far back as 2015 under its DC/EP (digital currency/electronic payment) programme. Since then, the People’s Bank of China (PBoC), the country’s central bank, has actively experimented with the technology in select Chinese cities including the country’s technology hub of Shenzhen.

In October 2020 Shenzhen's government disbursed 10 million yuan (US$1.5 million) worth of e-RMB in 50,000 red packets to local citizens and an increasing number of stores have started accepting e-RMB as a form of settlement.

In the European Union, the Bank of France, the country’s central bank, experimented with a digital euro for interbank settlements on a private blockchain platform in 2020. In Asia, the Monetary Authority of Singapore has been actively looking at CBDCs as a way to make cross-border payments more efficient under its Project Ubin.

The United States has taken a cautious approach to CBDCs with concerns over the proper crafting of a legal framework/regulation on what a digital currency would mean for monetary stability. Nonetheless, US-based companies such as J.P. Morgan and Facebook have driven the conversation around the possible use of digital currencies in the world’s largest economy.

Traditional cross-border payment infrastructures such as Swift are getting ready for the inevitable usage of CBDCs with interoperability between different systems seen as the foundation for success. “Making payments infrastructure based on CBDCs efficient and interoperable with the broader economy presents some new challenges, but the majority are the same as those faced by existing payment solutions,” states Thomas Zschach, chief innovation officer at Swift.

While exciting, CBDCs have a long way to go before they are accepted into the mainstream financial network. Issues around privacy and tracking of digital currency usage will be raised, especially where the governance of certain markets is called into questioned.

A recent J.P. Morgan whitepaper on digital transformation says the introduction of digital currencies could possibly slow the volume gains of digital payments since paper cash-based transactions were traditionally the largest source of volume gains by digital payments.