CBDCs Shift Away
In two years’ time, Reuters reported that over 130 countries were exploring central bank digital currencies (CBDCs), with nearly all G20 nations in advanced stages of their programs. However, as of now, only three countries—Nigeria, Jamaica, and the Bahamas—have launched CBDCs, while many other program implementations have stalled.
Analysis from Javelin
According to Joel Hugentobler, a Cryptocurrency Analyst at Javelin Strategy & Research, multiple factors contributed to the swift shift away from government-issued, fiat-backed tokens. He suggested that shelving CBDC programs could have far-reaching effects on the digital assets industry.
From Programs to Bans
The initial push for CBDCs was partly driven by a decline in cash usage and the rise of crypto and digital assets. The COVID-19 pandemic further accelerated these initiatives, as digital payments gained prominence. Former President Joe Biden had requested an assessment on the feasibility of CBDCs in the United States, but no firm plans were made to issue a retail digital dollar. Instead, discussions centered around a U.S. CBDC for bank-to-bank transactions.
With a change in administration, CBDC programs shifted from the backburner to outright bans. A bill prohibiting the Federal Reserve from issuing a CBDC without explicit congressional approval has passed the House of Representatives and awaits action in the Senate. Hugentobler commented, “For now, nothing significant will come out of the U.S., and this wasn’t unexpected.” He noted that President Trump’s administration favored private sector innovation over government-issued digital currencies.
UK and South Korea Shelve Programs
The United Kingdom, a long-time innovator in financial services, particularly open banking, is reportedly abandoning its plans for a digital pound. The Bank of England cited concerns that a CBDC might not bring substantial benefits to the UK’s financial system, suggesting that banks should focus on payment innovations instead.
South Korea recently halted initial CBDC trial phases, as the costs outweighed potential benefits. Privacy remains a significant concern in these implementations, as a CBDC could provide government officials with extensive insights into transactions and personal data, which would be useful for identifying money laundering or fraudulent activities.
Stablecoins Gain Ground
While CBDCs have taken a back seat, stablecoins now dominate the market. The leading stablecoins—backed by USD and issued by firms like Tether, Circle, and Paxos—are circulating in a $272 billion market. These tokens offer real-time, transparent payment settlement, making them highly sought after despite concerns over privacy.
A regulation called the GENIUS Act passed just before the anti-CBDC legislation. It aims to govern stablecoins but has faced pushback from some lawmakers who believe it could give the government excessive surveillance powers. The proliferation of new stablecoin offerings—from retailers, tech giants, and traditional financial institutions—will likely continue to pose challenges.
Not Counting CBDCs Out
Despite the dominance of stablecoins and concerns over privacy, Hugentobler maintains that CBDCs are not yet out of the picture. A different administration could revive interest in a CBDC for quick, direct payments to people during significant events like those seen in COVID-19. While he is not counting on it, Hugentobler acknowledges that all payment types—stablecoins, real-time payments, and card transactions—are likely to coexist.
