BITCOIN:
Bitcoin, by far the most popular cryptocurrency, has been making headlines for quite some time now. Satoshi Nakamoto developed it in 2008; contrary to popular belief, bitcoin is not the first cryptocurrency; that award goes to eCash. Bitcoin uses distributed ledger technology called the Blockchain. The advent of private decentralized cryptocurrencies like Bitcoin, Ethereum, central banks of different countries plays catch-up with the digital currency. The central banks have finally woken up, and 50 + countries are in various stages of central bank digital currency development.
China’s Digital Yuan
China’s digital Yuan (DCEP) is leading, and expectations are that country-wide implementation will happen by the end of 2021. Additionally, the Indian Government will introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021. This may ban trading in private cryptocurrencies such as Bitcoin and provide legal powers to RBI to develop Central Bank Digital Currency.
Digital Yuan or DCEP ( Digital Currency Electronic Payment) has backing by China’s national currency Yuan. The key difference between bitcoin and DCEP is that DCEP is a centralized legal tender backing by national money, whereas bitcoin is decentralized and not a legal tender. The aim of DCEP is financial inclusion and the growth of digital payments. Another salient point of DCEP is its traceability; for centuries, money has remained fungible but may change with Digital Yuan.
Any person or entity doing a transaction with DCEP will be stamped. Therefore it will create a record with the transaction details, which can be queried at any point in time. Many critics argue that it will be an encroachment on the user’s privacy; others speculate that it is a new tool for the Chinese government to monitor its residents. Other than China, Ecuador launched the e- currency in 2015. Tunisia launched blockchain-based “E- Dinar” in 2016, while several other countries like Sweden, Turkey, Indonesia, Brazil, and many others are in various development and testing phases.
OTHER COUNTRIES:
A consortium of central banks, including Canada, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Sveriges Riksbank – Central bank of Sweden, have partnered with the European Central Bank and Bank of International Settlements ( BIS). This partnership will assess the use cases for CBDC for economical, functional, and technical design, including cross-border payments and interoperability.
CBDC, if implemented correctly, will be the innovation of the decade, a game-changer providing frictionless payments for inter-country and intra- country transactions, creating the most seamless and quickest payment instrument that humanity has ever witnessed. Moreover, with the new regulation on cryptocurrency and digital currency, India has taken baby steps for developing its Central Bank Digital Currency.
50 + Countries are in various stages of CBDC implementation; an area where India is lagging is Blockchain, which will see much growth in the coming years. With several countries, including India launching their Digital Currencies, professionals in the BFSI space need to have in-depth knowledge of how they can leverage blockchain technology to improve processes within their organization.