National Digital Currencies: A New Era of Digital Money

In a world where technology grows exponentially, its influence transcends all sectors, including finance. Digital currencies are products of these technological advancements, affecting how people perceive and use money.

While there have been a series of controversies since the launch of Bitcoin and many other digital currencies, global acceptability continues to increase. However, most national banks fear the decentralized nature of digital assets.

Digital currencies are the direct opposite of the traditional banking system. There are no tangibles like notes and cheques. Instead, it represents programmable money that is available and accessible electronically.

Electronic forms of payment offer many benefits. Since the launch of Bitcoin in 2001, there have been no borders or restrictions on long-distance transactions. The benefits suddenly aroused global acceptance from users. However, it is the opposite for the government and central banks. 

In 2020, China was the first to establish a national digital currency. Amidst the controversy surrounding the decentralized nature of digital coins, some countries opted to create a centralized digital currency to gain more control and boost national acceptability.

Central Bank Digital Currency (CBDC) is a recent emergence in the money revolution. While it is also a digital form of money, it is fronted by a country’s central bank as a fiat currency. The difference is that it is centralized (since it is issued by the central/national bank). Hence, it has the full backing of the country’s monetary policies.

So far, many countries have CBDCS, and many plan to launch full or pilot-scale programs as part of their monetary policies. Like the decentralized currencies like Bitcoin and Ethereum, CBDS are safe and easy to use. They provide seamless cross-border payment solutions, which has been a significant challenge for traditional payment options.

The technology behind CBDS is similar to that of cryptocurrencies. Most countries adopt the Distributed Ledger Technology (DLT), which allows for synchronized and simultaneous access by multiple parties. This accounts for its numerous benefits, which include transparency, immutability, and resilience. 

Transactions can be traced, which is precisely the opposite of cryptocurrencies. The idea behind CBDCS is to enhance accountability so that transactions cannot be altered. While some countries adopt other technologies, DLT is popular as it is not energy-intensive and employs more efficient approaches.

As mentioned, China is one of the pioneers of national digital currencies following the pilot launch of the Digital Yuan or e-CNY in April 2020. The Chinese model includes several outstanding features, like the two-tier issuance system. The People’s Bank of China (PBOC) first issued the Digital Yuan to commercial banks who later distributed it to the public. The system was also selective in that smaller volumes of transactions do not require any KYC. Bigger transactions, however, require ID verification. The e-CNY also features smart contract capability and offline functionality, allowing seamless transactions. 

The most popular sectors currently utilizing digital currencies are online exchanges, e-commerce, local businesses, and the gaming and gambling industry. While gambling is illegal in China, many other gambling enthusiasts are utilizing the technology. To find more information, you can read online casino reviews that emphasize the benefits of digital currencies for easy payments.

Another notable national digital currency is the Swedish e-krona. Sweden is a hub for fintech and is highly regarded as one of the least cash-dependent countries in the world. Hence, it is unsurprising that the Sveriges Riksbank thought it wise to establish its digital currency. The key feature of the eKrona is the current focus on retail applications. It also supports offline functionality and emphasizes resilience to provide more innovative payment solutions in the country. 

The Bahamas is another country that owns a national digital currency. The Bahamas’ Sand Dollar was initiated in 2018 by the country’s apex bank. However, it was not until October 2020 that the currency officially launched to provide financial inclusion to cater to the needs of tourists and citizens. 

Another motivation behind the Sand Dollar launch is the country’s position as a leading tourist destination. The currency strengthens the efforts against money laundering and financing of illegal activities. It also enhances financial inclusion and allows for smooth payments even during natural disasters.

Many countries globally have launched digital currencies through their central banks. The Eastern Caribbean DCash covers Saint Lucia, Dominica, Grenada, and Antigua and Barbuda. There is also the Nigerian e-Naira, Cambodia Baking, Japanese Digital Yen, and many more.

While conventional cryptocurrencies are already well established, despite the controversies surrounding their decentralized nature, national digital currencies are still in their infancy stage. Since its launch in some countries, it is yet to be fully integrated and accepted as a means of payment.

Nevertheless, its adoption clearly indicates that digital currencies offer so many benefits. They provide a secure, efficient, cheaper, and more inclusive payment solution. Hence, the future of national digital currencies is expected to follow an upward trend, especially as most countries continue to encourage and enforce cashless policies.