Tuesday, March 15, 2022

An Update on the Evolution of Central Bank Digital Currencies

As my long-term readers know, I have a fixation on the post-physical money reality (aka a cashless society) that I believe is coming very soon.  The implementation of central bank digital currencies or CBDCs is, in my opinion, part of the ultimate plan for the world and, hand-in-hand with the issuance of digital identification in the guise of vaccine passports, part of our dystopic future where governments will have the ability to completely control the serf class.


Let's open this posting by looking at quotes from a speech entitled "The Future of Money: Gearing up for Central Bank Digital Currency" given on February 9, 2022 by Kristalina Georgieva, the Managing Director of the IMF at the Atlantic Council in Washington, DC on the launching of a report by the International Monetary Fund entitled "Behind the Scenes of Central Bank Digital Currency" dated February 2022:


"We have moved beyond conceptual discussions of CBDCs and we are now in the phase of experimentation. Central banks are rolling up their sleeves and familiarizing themselves with the bits and bytes of digital money.


These are still early days for CBDCs and we don’t quite know how far and how fast they will go.  What we know is that central banks are building capacity to harness new technologies—to be ready for what may lie ahead.


If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money. That is clearly the case when compared to unbacked crypto assets that are inherently volatile. And even the better managed and regulated stablecoins may not be quite a match against a stable and welldesigned central bank digital currency.


We know that the move towards CBDCs is gaining momentum, driven by the ingenuity of Central Banks.


All told, around 100 countries are exploring CBDCs at one level or another. Some researching, some testing, and a few already distributing CBDC to the public.


The history of money is entering a new chapter.

Countries are seeking to preserve key aspects of their traditional monetary and financial systems, while experimenting with new digital forms of money.


The paper we are releasing today shows that for those experiments to succeed policymakers need to deal with many open questions, technical obstacles, and policy tradeoffs.


It may not be easy or straightforward, but I am confident that the bright minds in Central Banks can succeed, thanks to their trademark resourcefulness and perseverance.


Fittingly, even the great inventor Thomas Edison acknowledged that: “There is no substitute for hard work.”


And this is what we embrace at the IMF: This hard work has already advanced. We are supporting countries in their CBDC experiments—to understand big picture trade-offs, to provide technical assistance, and to serve as a transmission line of learning and best practice across all 190 members. And we are stepping up collaboration with other institutions, such as the Bank for International Settlements, at par with the rapidly growing significance of digital money.


Today’s discussion is only the beginning of an exciting journey — and we have a great panel to take us further on it."


The IMF issued this report for the following reasons:


"This paper shines the spotlight on the handful of countries at the frontier in the hope of identifying and sharing insights, lessons, and open questions for the benefit of the many countries following in their footsteps. Clearly, what can be gleaned from these experiences does not necessarily apply elsewhere. The sample of countries remains small and country circumstances differ widely. However, the insights in this paper may inspire further investigation and allow countries to gain time by building on the experience of others. Importantly, the purpose of this paper is not to evaluate the courses taken by different jurisdictions, but to study and discuss their key experiences and lessons."


The IMF report looks at six advanced CBDC projects by the central banks of the Bahamas, China, Uruguay, Sweden and the Bank of Canada along with the Eastern Caribbean Central Bank (ECCB) which is the central bank for eight island economies including Anguilla, Antigua and Barbuda, Dominica, Granada, Monterrat, St. Kitts and Nevis, Saint Lucia and St. Vincent and the Grenadines.  The chosen projects must meet at least one of these criteria:

1.) A CBDC is already issued. Selected project: Central Bank of The Bahamas (CBOB).

2.) A pilot CBDC has been or is being tested involving actual households and firms. Selected projects: People’s Bank of China (PBOC), Eastern Caribbean Central Bank (ECCB),4 and Banco Central de Uruguay (BCDU).

3.) A CBDC project has been brought onto the country’s political agenda and is being analyzed by government or parliamentary bodies outside of the central bank. Selected project: Sveriges Riksbank.

4.) The central bank has carried out a CBDC project and decided against issuing a CBDC for the time being.  Selected project: Bank of Canada (BOC).


The authors of the report note that CBDC projects have certain policy goals which establish guidelines for the design and technology of the currency as follows and as quoted from the report:


1.) Financial Inclusion - "Financial inclusion entails access to appropriate and affordable financial services and is associated with poverty reduction worldwide.  But despite significant progress, large parts of the world’s population remain financially underserved. Increasing financial inclusion has many challenges, including access to digital technology. CBDC could potentially facilitate financial inclusion by increasing access to digital payments and thus serving as a gateway to wider access to financial services."


Basically, the IMF claim that's they want to promote banking services to underserved sections of the population which, in general, tend to be the poor or geographically isolated members of society.


2.) Access to Payments - "Helping facilitate payments among the population is an important objective for central banks in most countries.  Access to payments is associated with, but not identical to, financial inclusion. Even countries with high levels of financial inclusion, such as Sweden, can still face access to payments challenges. Some central banks are concerned that private payment service providers might not find extending services to all parts of the population sufficiently profitable, and that a declining use of cash will exacerbate the problem. Some jurisdictions are therefore exploring if a CBDC could help achieve or safeguard universal access to payments.

In some nations, a shortage of cash or the refusal to accept cash for payments is problematic.  In other nations, the use of cash is dwindling (i.e. Sweden) meaning that the citizens of Sweden may have difficulty with financial transactions if they wish to use cash for payment.


3.) Making Payments More Efficient - "In countries where cash and check use is high, operational costs are elevated. And in some countries, existing digital payments are also relatively expensive. CBDC is therefore a potential policy tool to offer digital forms of payments that are cheaper to operate. The non-profit nature of central banks means that they could potentially offer low-cost payments as a public good, potentially subject to the need to eventually recover costs."


4.) Ensuring Resilience of Payments: "Ensuring the ability to pay and extending government transfers to individuals under severe circumstances is important for all jurisdictions, but the urgency of this policy goal is especially high in disaster-prone nations....Countries with a highly digitalized payment sector are concerned about disruption to digital services and concentration risks where there are only a few large operators."


If the digital payment system of a nation is unfunctional because the system is not accessible during a telecommunications shutdown, cash will still play a role as a backup form of payment, however, if cash is no longer in circulation, any disruption to digital services could become a significant issue.


5.) Reducing Illicit Use of Money - "Some features of cash, including anonymity and the lack of an audit trail,19 make it attractive for illicit transactions (for example, tax evasion, money laundering, and terrorist financing). CBDC could potentially reduce this problem."

This has long been one of the reasons/excuses to justify why authorities claim that the world needs CBDCs.


6.) Monetary Sovereignty - "While currency substitution has long been a risk facing countries, it is possible that new forms of digital currency might have a competitive advantage relative to older forms of currencies. If a sufficiently large portion of a country’s population adopts a foreign digital currency or a global stablecoin, the ability of the country to carry out several crucial central bank functions might be impaired, such as monetary policy and lender of last resort."


Central bankers are concerned that, if the citizens of a nation decide to adopt a currency other than their national currency (i.e. Canadians begin to use the U.S. dollar rather than the Canadian dollar), this could become problematic and could be solved with the issuance of a CBDC.


7.) Competition: "CBDC could potentially increase competition in a country’s payments sector in two ways: directly, by competing with existing forms of payments; and indirectly, should the CBDC be designed as a platform open to private payment service providers. The latter would ensure low barriers of entry for new firms seeking to offer new payment services.


What is interesting is that nations will have to change their legal framework to allow central banks to issue CBDCs.  In the six jurisdictions studied in the report, we find the following:


1.) No law reform envisaged at this state - Canada and Uruguay


2.) Law reform under preparation - Sweden, China and the ECCU


3.) Law reform enacted - Bahamas


Should you be interested in watching the entire "conversation" about the IMF's paper and the plans for a CBDC ecosystem, you can find the panel discussion here:



Let's close with this screen capture from the Atlantic Council GeoEconomics Center's CBDC Tracker which shows us the evolution of money around the world:


Here is a breakdown by status:


1.) 14 nations have a CBDC pilot project: includes Jamaica, Anguilla, South Africa, Sweden, Ukraine, Saudi Arabia, United Arab Emirates, China, South Korea, Thailand, Singapore, Malaysia, Hong Kong


2.) 9 nations have launched a CBDC: Bahamas and the Caribbean nations belonging to the ECCU, Nigeria 


3.) 17 nations are developing a CBDC: includes Canada, Russia, Brazil, Venezuela, Australia, India, Turkey and Japan.


4.) 40 nations are researching a CBDC: includes the United States, Mexico, Europe, Chile, Peru, New Zealand, Iran and Indonesia.


Here are two graphics showing the rapid evolution of the "race for the future of money", comparing the progress in April 2021 to December 2021:


We all must face the uncomfortable truth that we are on the cusp of the most significant change to the global monetary system since the abandonment of the gold standard in 1971. With the ability of governments and central banks to program CBDCs, one can easily see how the implementation of a social credit score that is linked to the currently being developed vaccine passports (aka digital identification) can be used to control what the serf class is allowed to buy and consume as well as restricting the payment of universal basic incomes to those citizens that are seen to be troublemakers in the eyes of governments.

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