As cryptocurrency continues to trend upward, the possibility of digital currencies becoming a staple in everyday life is becoming increasingly likely. Asia, in particular, accounts for 43% of worldwide cryptocurrency activity, as of June 2020, according to data from Cointelegraph.
These recent numbers suggest that cryptocurrency is here to stay, and as such, countries in the region are looking to develop their very own central bank digital currencies (CBDC).
Key Differences of CBDCs
While a handful of cryptocurrencies do exist and are driving activity on the global market (such as Bitcoin, Ethereum, and Cardano), the key difference with CBDCs is government backing. Unlike the previously mentioned virtual currencies, a CBDC would be issued and fully accredited by the country’s respective central bank. Additionally, as it is government-issued, a CBDC also holds no investment value as it essentially acts as a digital version of the issuing country’s pre-existing currency.
By venturing into developing CBDCs, countries may benefit in several ways. As per the International Monetary Fund, some of the potential advantages of establishing CBDCs include the following:
- Cost efficiency – When compared to the nature of physical cash, CBDCs may lower production and transaction costs which may be advantageous for countries depending on several conditions (territory, demographic, regional infrastructure, etc.).
- Accessibility – In stark difference to other cryptocurrencies, CBDCs would ideally not require citizens to hold a bank, trading account, or anything of the sort; this also helps with inclusivity for the underbanked.
- Safety – Assuming that CBDCs would be digital versions of the country’s existing currency unit, consumers can take comfort in the fact that financial liability would fall upon central banks, thus allowing for safer payments.
Although certain challenges should first be addressed (i.e., risk of centralizing, cybersecurity, stability between virtual and physical currency), many Asian countries have taken the initiative to explore adopting CBDCs. By including the development of digital currencies as part of a national agenda, the fintech industry and its related subsectors like digital payments or cashless transactions are further promoted. Such a trend is significant, especially when considering that the adoption of financial technologies across businesses and everyday life is rapidly growing in Asia.
Ongoing Development
Considering the present landscape of the CBDC movement in Asia, China is currently at the forefront as they are closest to launching the first CBDC in the world: the Digital Currency Electronic Payment (DCEP) system, more popularly known as the e-yuan. Beginning development in 2014, the e-yuan (e-CNY) has already registered a total of 5.34 billion USD in transactions across several pilot projects since July 2021 as reported by KrASIA. While the official launch of the virtual currency is still expected to happen in 2022, early figures indicate the promising potential of digital banking platforms and Asia digital currencies.
Neighboring countries have taken note and similar prospects are being explored, but initiatives are still at the early stage of development. Aside from CBDC trial launches in both South Korea and Japan, activity in Southeast Asia surrounding CBDC development has drastically increased, especially in Indonesia, Vietnam, Thailand, and Singapore. While these countries are at varying stages of establishing their own digital currencies, each country has solidified investment by asking their respective central banks to conduct research and pilot tests to assess feasibility.
For example, Singapore recently collaborated with France to test cross-border CBDC exchange, a project which produced favorable results. As reported by Finextra, the cross-border transactional simulation indicated that CBDCs allowed for the decentralization of financial infrastructure, which in turn resulted in improved liquidity and a boost in overall efficiency. The success of the trial is also an indication that future transactions between countries’ respective CBDCs are possible given the right conditions.
Given that cryptocurrency seems to be the way of the future, the level of burgeoning CBDC-related activity in Asia is a positive step in the right direction, and the region is seemingly placing itself atop the CBDC movement.
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