Arrival and Consequences of Central Bank Digital Currencies in 2022

Arrival and Consequences of Central Bank Digital Currencies in 4 Regions

An increasing number of worldwide governments today are strongly considering the issuance of their own central bank digital currencies (CBDCs). As a result, government officials are carefully weighing the advantages and potential obstacles to this significant shift in the fiscal and monetary policies of global economies.

There is constantly growing debate about this significant governmental policy change around the globe. In fact, the Bank for International Settlements (BIS) has complied a summary of governmental motives and economic effects of introducing CBDCs on a large scale. This summary also addresses additional research and work areas before these central bank digital currencies are issued.

A survey conducted in 2020 revealed that more than 85 percent of global central banks are involved in research concerning CBDCs. By July of 2021, upwards of 55 central banks have broadcast their efforts and plants toward issuing their own digital currencies. Yet by November of 2021, only two central banks had actually issued CBDCs. A few more were involved in pilot studies of future CBDCs.

Basic Principles of Public Policy

With a basic structure, a retail CBDC would be created and issued as a digital version of central bank money. It would have national account unit denominations, which would be separate and different from electronic reserves and cash in its physical form. CBDCs would also be a different form of monetary exchange from commercial bank funds.

When issued, CBDCs would be a version of central bank money that could serve as a liquid, reliable settlement asset. These digital currencies could also act as anchors for the central bank payments structure. Designing a CBDC must involve detailed decisions such as the necessity of determining a balance involving numerous goals for public policy concerning CBDCs.

In October 2021, the G7 joined the controversy, issuing a series of public policy rulings relative to retail CBDCs. The G7 also emphasized that the final decision on issuing a central bank digital currency lies with each individual country. At that time, no G7 government member had made such a decision.

G7 Central Bank Digital Currencies Public Policy Principles

G7 Central Bank Digital Currencies Public Policy Principles

These public policy principles consist of 13 principles separated into two sections. These principles focus on the following issues and related regulations:

  • Principles 1-8: Foundational Issues and Principles
  • Principles 9-13: Opportunities of Issuing CBDCs

The foundational issues are factors that all CBDCs must display to gain credibility and the trust of digital currency users. These factors include maintaining full financial and monetary strength and stability as well as safeguarding all users’ privacy. Also included are stringent standards of operation and optimal cyber resilience.

Financial crime and evasion of sanctions must be staunchly avoided. Environmental sustainability is also of utmost importance. CBDCs must also have the capacity to provide multiple opportunities. These opportunities include innovation and quality digital economy, complete financial inclusion, and the reduction of issues with cross-border monetary transactions.

Global Developments Related to the G7 CBDC Public Policy Principles

There have been many worldwide reactions to and developments after the G7 CBDC Public Policy Principles, such as the following:

Asia

Asia has multiple central banks that are researching the potential for issuing CBDCs. A leading bank in this effort is The People’s Bank of China, starting with its creation of the e-CNY in 2014. The e-CNY is designed with a two-tier structure with which the central bank can issue e-CNYs to commercial banks. These banks are then authorized to distribute them to the general public.

Middle East

In the Middle East, the Central Bank of the United Arab Emirates finalized Project Aber. This was a concept-verifying CBDC study initiated in 2019. It examined the value of a distributed ledger technology solution to be applied to cross-border fund transactions with the Saudi Central Bank.

England

In November 2021, the Bank of England (BoE) and HM Treasury delivered a joint statement outlining the next steps in the assessment of a UK CBDC. In 2022, HMT and the BoE plan to initiate a consult concerning the proposal of the UK CBDC that will thoroughly assess the major issues involved. The top-grade design components will be examined along with potential benefits and aspects for individual users and companies.

United States

In the US, the possible issuance of a CBDC is being considered. Yet as a guardian of the US dollar, the most widely used currency around the globe, the Federal Reserve is being cautious. The Reserve is collaborating with the Massachusetts Institute of Technology for the creation of a technology system for creating a hypothetical dollar in digital form. However, the paramount consideration is creating a strongly valid and valuable CBDC rather than finalizing one with speed.

Global Developments Related to the G7 CBDC Public Policy Principles

Calculating Interest Rates with New Global Digital Currencies

Many current and potential cryptocurrency users have a strong interest in following the development of and using various global central bank digital currencies when they are issued. Keeping up with interest rate calculations is essential when considering the use of these global digital currencies issued by worldwide central banks.

A very helpful tool to use for this purpose is the Crypto Coin Growth Compound Interest Calculator. As a crypto user getting involved with the use of CBDCs, you will no doubt want to be aware of compound interest calculations involving both of these types of digital currencies.

To use this calculator, simply follow these steps:

  1. Enter your initial digital currency purchase amount.
  2. Enter the daily interest rate percentage (include weekends).
  3. Enter the length of the term in days.
  4. Enter daily reinvest rate (include weekends).
  5. Then calculate.

The calculator will return figures for your initial balance, your total interest, and your new balance.