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First’s Monthly Insights — The Current State of CBDCs, Diem & Digital Currencies

As we head into 2021 and the global economy continues to feel the strain caused by the COVID-19 pandemic, banks and financial institutions worldwide continue to explore the benefits of digital assets. While regulations on the broader range of digital currencies are still being hammered out across the globe, governments have shifted their focus towards embracing the advantages of digital currencies, with the introduction of Central Bank Digital Currencies (CBDCs).

At least 19 countries have already taken concrete steps or announced their intentions to launch their own CBDCs. But with over 200 unique stablecoins already in circulation today, which work somewhat similarly to CBDCs — where the stablecoin is backed by an outside asset, such as the U.S. dollar or gold, to stabilize the price — many wonder whether CBDCs may in fact replace stablecoins? Coupled with the imminent launch of Diem payments (the Facebook-led currency previously known as Libra) — that have the potential to reach billions of people and solve problems like financial inclusion, digital identity, enabling cheaper payments, and more, it will certainly be an interesting year to see how things prevail.


A Central Bank Digital Currency (CBDC) is a digital form of fiat money. They are backed by a suitable amount of monetary reserves like cash, gold or foreign currency reserves, and each CBDC unit acts as a secure digital instrument equivalent to a paper bill that can be used as a way of making a payment, a store of value, and an official unit of account. CBDCs still require building an infrastructure so that it can be used to make payments.

As mentioned, several different governments are accelerating the development and implementation of their own CBDCs. China, for example, is already rolling out its Digital Yuan in places like Shenzhen. The nation has also just announced a plan to launch a global payment network, as early as this year, which is designed to facilitate payments of not only their own CBDC but also those of other nations. Interoperability of CBDCs between countries is still a massive challenge that is yet to be overcome.

A report in October from the European Central Bank (ECB), outlines some of the philosophies, obstacles and possible effects of a Digital Euro. Even more encouraging, was a joint statement issued by the ECB and European Commission released in January 2021, announcing they will be working together to decide on the viability of the Digital Euro by mid-2021. The Swedish government is exploring the creation of an “E-Krona,” and the French Central Bank just completed their own test of an interbank digital settlement asset. Whilst the Central Bank of the Bahamas launched their “Sand Dollar” in October 2020.

Notably, the Bank of Thailand has announced that it is in the third phase of development of its own CBDC, and is already using it to facilitate transactions between large businesses. Rollout to the general population is still under review, however. One other example, the Reserve Bank of Australia has revealed it is partnering with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software for research into the creation of its own national digital currency.

There’s also some news coming out of the global payment company Visa, who recently released research outlining what a future CBDC could look like and how it may impact society. Highlights include the ability to transfer this hypothetical CBDC offline between devices, meaning a high degree of flexibility even at the consumer level.

While there are more examples out there, some nations, such as the United States, aren’t as far along as some of the other nations above. US Federal Reserve Chairman, Jerome Powell, said in a recent Webinar that the Fed acknowledges the importance of this technology and is researching the creation of its own CBDC. However, Powell also asserted that they were taking their time and saw no need to be the first to the market. He also emphasized the importance of Stablecoin regulation, which brings us to our next topic:


Stablecoins represent a larger and far less regulated world than CBDCs. In 2020, the stablecoin space exploded and in fact more than doubled just between Q2, coming in at 3.8 billion, and Q3, with a whopping 7.9 billion. Many projects already exist that are looking to offer stable alternatives that still carry the benefits of cryptocurrency, and fortunately, in 2021 there is some optimistic news concerning their use and regulation.

Recently in the US, the Office of the Comptroller of the Currency (OCC) released a statement that basically cleared Federally Regulated Banks for using stablecoins for payments and other activities. There has also been the recent regulatory overhaul in Singapore too, that will see any company that facilitates the transfer of cryptocurrency to be subject to comprehensive registration and licensing guidelines. These actions might also be beneficial for existing stablecoins such as USDC and even Tether, the two most used stablecoins by cryptocurrency traders.


Many think that at a very fundamental level, stablecoins did in fact help lead to the development of CBDCs. For example, the original Diem Association whitepaper has quite a few similarities from an operational perspective, with the entire idea of a stablecoin making a centrally-issued crypto asset tangible and realistic in the marketplace.

Previously known as Libra, Diem is stablecoin that has been created by an Association which includes Facebook, Uber, Lyft, Shopify, PayU, Andreessen Horowitz, and other reputable names. And while it had a rough start with regulators worldwide, Diem transactions appear to still be on track. According to David Marcus, head of Facebook Financials and former president of PayPal, Diem should be released later this year, with Facebook’s own wallet, Novi, leading the way.

The objective is for the ‘Diem payment system to integrate smoothly with local monetary and macroprudential policies and complement existing currencies’. Diem hopes to be able to collaborate with central banks on issues such as direct custody of cash or cash equivalents and very short-term government securities or the integration of the Diem payment system with CBDCs.

To 2021…

Regardless of trying to work out the winners and losers, the importance of competition and competitive forces are difficult to overstate. Especially in an area that is as fast moving and rapidly developing as blockchain and crypto assets.

The Diem infrastructure, coupled with the experience and background of its new members will help the project enter a new phase. Whether or not Diem will be broadly accepted and adopted remains to be seen, but it is likely to be a major part of the stablecoin conversation moving forward.

About First

First is building the future of the digital asset economy. By developing the first global digital payment platform for PSPs and Acquirers, First provides developers with the tools they need to make a safe and simple Diem gateway for merchants, as well as methods of accepting CBDCs and Stablecoins.

As a team of pragmatic tech enthusiasts, passionate developers, and experienced financial experts, we believe the digital payment ecosystem has the potential to create a better world economy for all.



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