![]() The project expanded to 23 cities by the end of last year. Smart-contract technology could also make it possible to ensure welfare money is spent only on permitted items, such as food or medicine.Ĭhina’s digital yuan is the largest-scale experiment in CBDCs to date. They could also open up novel possibilities for revamping social welfare and financial inclusion, says Veneris, by enabling direct cash transfers to people regardless of whether they have a bank account. Much like cryptocurrencies, CBDCs could make it possible to instantly transfer money between people without relying on third parties, resulting in cheaper, faster payments. “Payment systems today are expensive they are clumsy and slow,” he says, pointing out that much of the underlying technology is more than 40 years old. One of the primary motivations is to improve the cost, speed, and flexibility of digital payment, says Veneris. Treasury Department to investigate the possibility of a digital dollar, and ac cording to the Atlantic Council, more than 50 countries are in advanced stages of exploring CBDCs. (Contrast these efforts at homespun national e-currencies with countries experimenting with making Bitcoin or other pre-existing cryptocurrencies legal tender, as El Salvador has recently done.) An executive order from the Biden administration in March called for the U.S. China has long been the global leader in this field, starting research on digital currencies in 2014 and launching pilots of its digital yuan in four cities in late 2019.īut in October 2020, the Bahamas became the first country to roll out a central bank digital currency (CBDC) nationwide, and since then digital versions of the East Caribbean dollar, Nigeria’s naira, and the Jamaican dollar have all launched. Now countries around the world are borrowing from crypto’s playbook to develop digital versions of national currencies. “They proved that there can be a new way to organize money and make payments, and that this can be widely adopted,” says Andreas Veneris, a professor of computer engineering at the University of Toronto, who has advised the Bank of Canada on digital currencies. Volatile prices and regulatory uncertainty have limited their adoption as a practical medium of payment, but the underlying technology has led to a major rethink of what money should look like in the digital age. Rich Turrin, author and fintech consultant “We have to be very careful in not ascribing superpowers to central bank digital currencies, when government has these powers over your existing bank accounts.” Second-generation cryptocurrencies like Ether also introduced the idea of programmable money, making it possible to create smart contracts that automate the execution of financial agreements. Since then a host of new cryptocurrencies has emerged, promising a fast, cheap, and secure way to transfer money directly between users without relying on banks or payment providers. That was turned on its head in 2009 with the launch of Bitcoin, which uses blockchain technology to delegate the minting and governance of the digital currency to a decentralized network of volunteers. In most developed economies, the production and distribution of money has been the sole remit of central banks for at least a century. These new forms of cash could boost financial inclusion, slash payment fees, and make money smarter, say experts, but they also present significant risks. Eager not to get left behind, central banks around the world are starting to develop their own digital currencies. The rise of cryptocurrencies is rewriting long-standing ideas about how money should work. ![]()
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