The Bithumb Blog
Published in

The Bithumb Blog

[Insight] Digital Currencies Led by Nations Emerge

More than ten years have passed since the birth of Bitcoin. Though it was not enough to buy a pizza at first, now it has become an asset surpassing USD 10,000. In the meanwhile, countries have had much interest in virtual assets (Cryptocurrencies) and digital currencies. The industry commonly calls them Central Bank Digital Currencies (CBDC). This year, each country’s movement towards CBDC appears noticeable.

U.S. Federal Reserve and BIS Publish CBDC Report

First, the most noticeable news of all is that the U.S. Federal Reserve and Bank for International Settlements (BIS), the Central of the Central banks, have jointly published the CBDC report. This report which was released on October 9th (local time), specifies the basic principles and main functions of the CBDC.

Not only the Federal Reserve and the BIS, but also other central banks such as the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Swiss National Bank, and Sveriges Riksbank had participated in the preparation of the report. This fact shows that many financial key-countries have taken part in the publication.

Most notably, the BIS emphasized the Three key-principles for CBDC in this report. First of all, coexistence with cash and currencies in other payment systems. Secondly, any introduction should support broader policy objectives and should do no harm to monetary and financial stability. Lastly, features should promote innovation and efficiency.

According to these three key-principles, the BIS also explained that any future CBDC system must be convenient and should be available for end-users at very low or free of cost and should be supported on the basis of proper standards and legality. Also, they mentioned that it should be resilient and secure to maintain operational integrity, and it should work with a proper role within the private sector. In other words, this means that even the CBDC system needs to be in connection with the private sector to some degree.

Deutsche Bank Is Concerned about Applications of CBDC

Deutsche Bank, the largest bank in Germany, a leading country in Europe, also expressed its opinion about CBDC in the report issued in September 2020. “Since the outbreak of the COVID-19 pandemic has accelerated the non-contact payments, a tendency towards the payment systems linked with blockchain technology is growing,” Deutsche Bank said. “The emergence of CBDC through these tendencies is not a far future. Soon, CBDC will bring both the private sector and financial institutions new opportunities and new challenges at the same time.” Furthermore, the bank evaluated the boundless payments without the interference of intermediaries and the improvement of privacy problems in financial transactions as their merits. Deutsche Bank also added “If implemented, CBDC could change the world we live in significantly”

And yet, Deutsche Bank expressed a skeptical viewpoint regarding the performance of the CBDC, which is still at the test level. “To make CBDC an attractive alternative to physical currencies, the CBDC must fulfill Cash-equivalent functions more effectively,” Deutsche Bank mentioned. “To function as currencies, they should serve as a medium of exchange, a measurement of value, and a store of value. CBDC should build-up some confidence to overcome the skeptics.” Also, they added, “The merits of CBDC such as Payments without borders and Cost-efficient methods, should also be encouraged.”

According to the explanation of Deutsche Bank, since there has been no empirical real-time test for CBDC, the various test through distributed ledgers did show that they have their unique advantages and potential. Since CBDC are very different from existing currencies, the bank evaluated that the future challenge will be “how to utilize them with relevant technologies.” Also, they added that the diversity of CBDC could be their advantages. “Since new variables may cause some side effects, but they got some potential to create additional value,” Deutsche Bank stated. “From this point of view, we should not neglect CBDC because of their uncertainty. If implemented, CBDC bring excluded economic subjects thus far. It will allow us to improve the effectiveness of the current monetary policy and make a much easier transaction possible.”

BOK Launches CBDC Pilot Program… Planning to Issue and Circulate CBDC in 2021

Meanwhile, even Korea started to test CBDC. The launch of the CBDC pilot program by the Bank of Korea (BOK) is the one. According to the news released on October 7th (Korean time), the Bank of Korea completed the first phase review of the program and will start the analysis and outsourcing of the CBDC program as the second phase base on it. The pilot system has launched. At this consulting phase, BOK will design the course, form, and build up detailed action plans for the CBDC pilot program to issue and circulate the CBDC. Though some countries do not use blockchain technology for CBDC, the BOK explained that they are planning to manage the CBDC ledger for recording the status of holding currencies and the transaction history by using distributed ledger technology.

Regarding the circulation methods, the Banks will not issue the currencies directly to individuals or companies. They will release them indirectly via financial institutions, just like cash. About the methods, Jang Hyun-Gi, HQ director of Shinhan Bank, said, “It seems the Bank of Korea can draw out the outline of CBDC by next year. CBDC are expected to be issued to individuals’ accounts via commercial banks by the central bank, instead of being directly issued to individuals by the central bank.” “Our bank is concerned about the service from the aspect,” he added that Shinhan Bank will map out CBDC in the form of indirect circulation.

As such, the creation of a new currency market through CBDC is just starting. Since reports saying that several countries will start large-scale experiments after the first phase of testing, it seems we need to pay extra attention to them. Looks like the emergence of digital currencies is not far from us.

*This research and analysis document has been prepared for the purpose of providing information that can be used as a reference based on our reliable data and information, but we cannot guarantee its accuracy or completeness.

*The document has reflected the individual’s opinion and it may not be consistent with the company’s official point of view.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store