Listen Now! Central Bank Digital Currencies in Asia: analysis of the Digital Yuan, the Project Inthanon-LionRock, the pilot tests in Korea and Japan and Project Aber

 

In this webinar, Dr Oriol Caudevilla discusses digital currencies in Asia.

Central Bank Digital Currencies (CBDCs) are a new form of Central Bank money accessible to the general public, accepted as a means of payment, legal tender, safe store of value by all citizens, businesses, and government agencies. CBDCs must meet two criteria:

1. They must be digital.
2. They must be a liability against the central bank.

There are currently two types of CBDCs- retail and wholesale. Retail CBDCs can be made available to the public at large. Wholesale CBDCs on the other hand facilitate more efficient central bank clearing operations between the central bank and its member’s bank.

Even though there may be similarities between CBDCs and cryptocurrencies, the two are very different. CBDCs are centralised by the central bank, cryptocurrencies are not. Whilst cryptocurrencies are established by private entities, CBDCs are normally supported by one central network driven to serve only the public policy of the country that issues them.

China’s digital Yuan is structured on a two-tier monetary system: a central bank- issued digital currency for commercial banks as well as a commercial bank- issued digital currency focused on the public and it is intended to replace some of China’s monetary base, or cash in circulation. Some of the advantages of the digital Yuan are allowing the country to save on printing costs, as well as allowing the country to control its financial system more efficiently. Interestingly, some government employees have been paid in digital Yuan in some areas of China.

Even though close to 80% of central banks in the world are researching the use of CBDCs, Asia is the one area in which CBDCs are arousing the most interest and in particular China. Japan, Korea, and Thailand are in the process of either testing their CBDCs or they are in the advanced stages of the research. Hong King is currently working on a project (the MCBDC) which involves the Central Bank of China as well as the Hong Kong monetary authority. Hong Kong and Macau will be testing for cross border payments. In Korea and Japan, both central banks announced that they will be testing the CBDCs in 2021, but do not plan to roll out CBDC soon like China.

If you are interested in seeing what is happening with CBDCs, click on this link, which tracks developments across the globe and follow Oriol Caudevilla On LinkedIn as he frequently shares great insights and analysis.