The number of countries interested in developing and adopting their own digital currency has increased significantly post-pandemic as apex banks recognize the role of technology and digitalisation in money related affairs.
This was revealed in 2022 PwC CBDC Global Index which estimated that more than 80 percent of central banks have already or are considering launching a central bank digital currency (CBDC).
The index analyzed and ranked the leading retail and wholesale CBDC projects (digital currencies designed for public use) and evaluated the current stage of CBDC project development, taking into account central bank opinion and public interest.
“Overall, retail CBDC projects have reached greater maturity levels than wholesale projects (digital currencies used by financial institutions that have accounts with central banks), but the past year has seen progress on a number of successful wholesale pilots,” it stated.
The report revealed that the Central Bank of Nigeria’s (CBN) eNaira was the first CBDC in Africa while the Bahamas was the first country to launch a CBDC which is the Sand Dollar, issued by the Central Bank of the Bahamas as legal tender in October 2020.
China became the first major economy to pilot a CBDC in 2020 with the digital yuan, and as of March 2022 pilot programs are running in 12 cities, including Beijing and Shanghai.
“On the wholesale side, the leading project in the Index is the combined effort of the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT) to launch the mBridge project, focused on developing a proof-of-concept prototype to enable real-time, cross-border foreign exchange payments on distributed ledger technology,” it stated.
Efforts of the Monetary Authority of Singapore (MAS), was also recognised with two new CBDC projects, as it continues the development of a wholesale CBDC for cross-currency payments.
Andrew Nevin, West Africa Financial Services Leader and Chief Economist, PwC Nigeria said the success of CBDCs could catalyse a more complex and transformative use in financial technologies including Blockchain Identity Management, Land Registry, and Supply Chain Verification, as each of the use cases develops.
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”CBDCs will transform the payment system, as low value-added transactions become possible in a costless and secure way for everyone, , we can bring more people into the economic and financial system and lift tens of millions out of poverty,” he said.
John Garvey, Global Financial Services Leader, PwC United States said financial institutions need to understand where central banks are with digital currencies, because ultimately CBDCs will start flowing through the payment system and start to hit bank balance sheets, adding that If CBDCs can ultimately enable more efficient payments, that will benefit everyone.
“Careful consultation with central banks is critical in clarifying the business case for CBDCs, from an inclusivity, financial performance and interoperability perspective, one thing that is clear, lowering the cost of payments in an economy provides value throughout the economy and for citizens,” he said.
The report also provided an overview of stablecoins, digital currencies collateralized by, for example, a fiat currency, which can allow a bridge to be created between the traditional financial ecosystem and digital technologies.
Haydn Jones, Blockchain & Crypto Specialist, PwC UK said countries are at differing levels of maturity with CBDCs with each having different motivating factors like Increasing financial inclusion, facilitating cross border payments and controlling financial crime.
“This year’s Index shows that central banks are ramping up activity in the digital currency space, we expect CBDC research, testing and implementation will intensify in 2022,” he said.
He added that the success of Nigeria’s eNaira is likely to spur CBDC development in countries where financial inclusion is one of the key desired outcomes.
